Why Calculate Your Net Worth

By | January 22, 2014

Understanding how much money that you own can be complicated if you take into account the deprecation of money. Having the tools that can tell you how hard you need your money to work is going to be time well spent. The net worth of your money will depreciate, so before this happens you have a chance now to invest it and make it perform for you.

Net Worth

History

Many people look back to work out how to find the current value of money. By working out the past values it gives people tools with working out the current value. But as with all things in the diverse economic climate that we are living in there are no guarantees that this information is the correct calculation, it is always only going to be a guide to the exact figures.

George Washington

Many people look back at the past wages and compare these to the cost of living today to see if in comparison they were paid less and led a less substantial life compared to some of the figures of today.

One of the great ways to do this is to compare salaries and wages of groups of people where you have access to historical data as well as the current equivalent information. This is why using the wage of George Washington and the current president Obama it is possible to see that the wages are comparative to the increase.

The wage for the first president of the United States of America was an annual salary of $25, 000 and the current president is paid $400,000 plus an expense account a fantastic pension and other benefits too.

How George Washington’s wages compare to the current president using the CPI (consumer price index) system makes his wages now to be around the $647,000. Therefore it is possible to judge that the salary that George Washington was paid was in line with the current president’s salary today. This shows society that we are not overpaying key figures and this can be used to judge the wages of the modern world and they seem to be in keeping with the passage of time.

How CPI works

Wikipedia states that CPI is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.’

It looks at the current prices of the commodities that are used in every-day lives of the people in a particular country and then this information is used to plot the changes in these prices over a period of time. It is this that is used to measure the change in the cost of living; this system is also used in the prediction of the rate of inflation that the particular country is facing.

So using the CPI system it is possible to work out the net worth of the money that you have saved, and the reason that you need to make it work harder for you to be worth the same monetary value as it is today.

Why work out your CPI

This information will allow you to judge the amount of money that you need to make in order for you to fulfil your required portfolio. This is why making a plan of the required amount of money that you will need in retirement is vital.

If you are able to understand the process of calculating the current CPI and the future CPI you will be in a better position to make sure that you income is going to be adequate in the future making sure that it is inflation proof.

It is possible to obtain the CPI regularly, it will depend on your country of residence to the frequency that these figures are created, some places it is monthly others choose to compile their figures quarterly.

But what it means to the investor and every family in the world, the money you have today is going to be worth less next year.  But by how much will depend on inflation and this is calculated using the CPI scale.

When you are working with the CPI scale it is possible to judge the amount that you are going to need in real terms.  This will mean that you are looking at what your capital is worth and working out ways to beat the rise of inflation so that the money that you own will be worth what you have planned in advance. This strategy will save you time, money and stress when you arrive at the planned time in the future.

 

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