There are many net worth software and calculators that will help you calculate your net worth. However, for you to get the most out of these, you must be able to calculate your own net worth by yourself. It only requires understanding about net worth.
Net Worth – What is It?
Generally, your net worth is your assets or everything you own minus your liabilities or what you owe. Assets may include investments and cash, your house, and some real estate properties, vehicles or anything of value you have. Liabilities, on the other hand, are what you own on such assets such as student loan debts, mortgage, and car loans.
Net worth is basically your financial health’s measure since it actually says what you’d have left over once you sold your assets to pay your debts. Each financial move you create must be aimed at boosting your net worth. It means either decreasing liabilities or increasing assets.
Steps to Calculate Your Net Worth
It is an easy and simple process to calculate your net worth, yet it requires that you gather all information that surrounds your current liabilities and assets. Majority of financial planners recommend that all of their clients keep a secured folder with information on all liabilities and financial assets to be updated every year. Organizing and gathering this information can bit a chore at first, yet ensures that you have an access to the information once required.
Even if such a folder may be turned into more, calculating net worth only needs basic financial information about the things you own as well as the debts you owe. Below are the ways to get started:
Calculating Assets
- Begin by listing your biggest assets. For many people, it might include the value of their home, vehicles or any real estate properties. In case of business owners, this list will also include the business value that has its own complicated calculation. Ensure that you use accurate market value estimates in current dollars.
- Gather the latest statements for more liquid assets. Such assets include savings and checking accounts, cash, some investments or CDs.
- Consider listing some of your personal items that can be of value. Such might include coin collections, valuable jewelry, musical instrument, and so on. You do not have to itemize everything, yet you may try listing items that are worth $500 and more.
- Add all of the assets together and get the total assets.
Calculating Liabilities
- Begin with your major outstanding liabilities including the balance on your car loans or mortgage. List such loans and current balances.
- List all your personal liabilities like student loans, balance on credit cards, and so on.
- Add everything and get the total liabilities.
Calculating Net Worth
- For you calculate your net worth, subtract total liabilities from total assets. It does not matter how small or big the number is. It does not matter if the number is negative because your net worth is the starting point to have something you can compare against in the long run.
Always be conservative with the estimates, particularly with vehicle and home values. Inflating value of big assets may look great on paper, yet might not provide your precise net worth.