Is Net Worth or FICO Score More Important?
In this episode of Allgen’s weekly #MoneyMinute, Jason and Paul shed light on the true meaning of a FICO score and how it differs from your net worth.
It may be surprising – but tracking our financial health by tracking assets instead of debt can be a great way to maintain a positive (and more accurate) outlook on the bigger picture.
Using Lazy Assets to Pay Off Debts
In addition, assets versus debts can have more obvious interactions than we may realize. As Jason says, a “lazy asset” is money sitting in an account that isn’t growing very quickly or making you a lot of money. It may be in a money market account, for example. This money is usually a safe form of savings, in that it doesn’t need to be watched or moved as much, so it can be a healthy part of a financial profile where minimal (or zero) debt is present.
However, if you have a debt with a very high interest rate, it could be costing you large amounts of money if it takes a long time to pay down. In this case, it could be better in the long-run to liquidate the “lazy asset” so you can pay off the more aggressive, more painful debt urgently – and avoid paying more money in interest over the months or years!
This is one of the benefits of considering your finances from a bigger picture: Your net worth.