Your net worth can provide you with an understanding of what your financial health is like. Read on to understand how to calculate your net worth and why we should know it!
What Is Net Worth?
Your net worth is the value of everything you own, minus the value of everything you owe. This is the number that tells us a lot about our debt and whether or not it is manageable.
Assets – Liabilities = Net Worth
If you have a positive net worth, it means that your assets outweigh or outperform your liabilities. If you have a negative net worth, the contrary is true: this would mean that your liabilities outweigh your assets. This could mean that your debt is high, the interest on your loans are high, or the value of some of your assets are in decline.
So when you know your net worth, you get a general sense of where your money is going, as well as where you think it should be going.
Assets And Liabilities
Gather a list of all your assets and liabilities. We are going to plug these numbers into the simple equation we have at the top.
What Are Assets?
Assets are anything that has added monetary value into your life. These are the objects or accounts that you could theoretically cash in and receive an equal or greater amount than what you put in. Common assets include cash accounts, investment accounts, and property.
What are Liabilities?
Liabilities are those debts you may have: this could be your student loan, credit card debt, or a mortgage. Common liabilities include credit card debt, personal loans, car loans, and mortgages.
How To Calculate Net Worth
First Step: Add up your assets
Second Step: Add up your liabilities
Third Step: Take your total liabilities and subtract it from your total assets
Assets – Liabilities = Net Worth
Once You Have Your Net Worth…
Write down your initial reactions. What does looking at your net worth make you feel? Are you happy? Proud? Disappointed? Confused?
Some guiding questions that will help you reflect and inform your overall planning:
- Is this the number what you were expecting?
- Where is the bulk of your total liabilities coming from?
- Which of your assets do you feel most confident and capable of increasing?
Use this number to craft your goals! And remember that what your net worth is today, doesn’t have to be your net worth tomorrow.
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