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Assets, liabilities and net worth

The income of a household is at the base of all financial activities it undertakes. The income is used to meet current expenses and a portion is set aside to meet expenses in the future. The portion of current income earmarked for future needs is called savings. The adequacy of the income of a household is always relative to its expenses. If the expenses are managed within the income and there is surplus to save, then the household’s finances are seen as stable. People often engage in option market and subscribe to intraday tips for a surplus amount. Short-term imbalances in income and expenses can be managed by loans and advances. The loans are a liability and come at a cost which may further strain the future income. The option of loans to fund expenses must be used with discretion since it weakens the financial situation of the household.

An assessment of the financial well-being of the household can be made by calculating the Net worth. The net worth is calculated as Assets – Liabilities. Higher this number better is the financial position of the household. Net worth should be calculated periodically, and the progress tracked to bring the financial situation to the desired stage. The people who have a net worth of about 4-5 lac come under HNI investors and are bound to take classic share market tips for their big investments.

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