Personal Finance

Calculate your net worth and know where you stand financially

Net Worth, sometimes termed as net assets, helps to know where you are financially at this moment in time. Net worth is the difference between your total assets and total liabilities. Calculating your net worth gives you a snapshot of where you stand financially.

In simply terms, net worth can be defined as the difference of ‘what you own’ and ‘what you owe’. Net worth statement can give you an exact detail of your assets and your liabilities. Hence it is recommended that you must prepare a net worth statement, at least once a year, to measure your overall financial position.

Preparing a net worth statement is not a tiresome task. But, in the first time you calculate your net worth, you will attain some difficulties since you will be starting from scratch. But this is the case for first time calculation only, from the next year each time you calculate your net worth, you should have all the documents and information in hand.

To calculate your net worth – the first thing you have to do is to collect and list all your assets and liabilities. Assets are cash and any other property you have with monetary value. Liabilities include all debts that you owe to others. That is, assets are ‘what you own’ and liabilities are ‘what you owe’. And to calculate your net worth, you need to first calculate your assets and then substrate your liabilities from it.

Let’s start calculating your assets. Assets include liquid assets, personal assets, and investment assets. Liquid assets are those which can be liquidated or turned into cash immediately. Some examples of liquid assets are your savings and money market account balances, your checking account balance, cash value life insurance, and any other asset which possess the same value as cash.

Personal assets include the current market value of your home, the market value of your automobile or automobiles, your stereo, video, or other electronic equipment, jewelry, your furniture, or any other personal items which have monetary value.

Investment assets include savings certificates or CDs, Individual Retirement Accounts (IRAs), stocks and bonds, Mutual Funds, or any other type of investment you may have.

Once you have collected details of all your assets you should value your assets at today’s prices or current market value, not at what you have paid for them. Set the value at what would you get if you sell your assets today.

After you have completed calculating your assets, look at the other side of your financial life – your liability. Liabilities may be of two types – current liabilities and long-term liabilities. Current liabilities are those debts which are payable within a year such as your credit card debt and any loan balances you may have. Long-term liabilities are those you pay over a long period of time such as mortgage. Gather all the details of liabilities and calculate your net liability.

Now you know what the value of your net asset and net liability. To calculate your net worth, subtract your net liabilities from your net assets. The result is your net worth – your overall financial position. Don’t forget that net worth can be positive or negative. Positive net worth indicates that you have less liability, while a negative net worth would indicate that you have greater liabilities than assets.

If you have negative net worth don’t get worried. Net worth will change periodically, depending on the appreciation or depreciation of your possessions and property. After all, knowing your net worth is the first step to getting your financial life in order. Determining your net worth can assist you to achieve your financial goals. It’s a simple exercise which can inform a lot about your financial well-being. Hence, calculate your net worth today to budget your expenditures and analyze your credit use.