Here’s why you should consider your assets and liabilities when investing
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Your overall wealth is never quite as simple as what your bank balance reads. Net wealth is calculated by the amount your assets exceed your liabilities. In other words, net wealth is the difference between what you own and what you owe.
It is important to know where you stand with assets and liabilities when investing. If you have more liabilities than assets it might be worth paying off unsecured liabilities before making an investment. You don’t want to end up in a position where you think you’ve got success with an investment earning 5% growth, when in fact you’ve got a credit card debt costing you 10%.
If you don’t have a grip on your overall financial health, then liabilities like debt could nullify your investment growth. Credit cards and unsecured loans can be expensive and you should consider making overpayments before investing.
The best way to avoid this pitfall is to list all of your liabilities. At the same time, list all of your assets. Take a total view of your financial well-being.
The positive thing about assets is these work alongside your investment to hopefully make you richer. For example, if you have bought a house, then just like an investment portfolio there’s a chance that property will appreciate in value over time.
With this in mind, you should take an overall view of investments, assets and liabilities. You should also check in on this overview regularly, amending any necessary changes. This way you can be confident where you stand with your wealth, and what you have to do with your goals to get to the level of wealth you desire.
You can update your assets and liabilities in the True Potential app. We’ve talked about the importance of logging in regularly, and you should also update these assets and liabilities regularly. Our award-winning technology will calculate your total balance, giving you an overall picture of wealth.
- Knowing your assets and liabilities gives you an idea of your net worth, the difference between what you own and what you owe.
- If you have more liabilities than assets then consider how to deal with these. Paying off debt means it won’t undermine your investment returns.
- Assets such as property work alongside your financial investments to give you a future source of wealth.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.