Net worth is basically every single thing you own that is of significance (assets) minus all that you owe in terms of debts (that is, liabilities). The assets can include investments, cash, your house, cars, real estate, or anything else you own that’s of value. Liabilities are basically what you owe others on the assets like student loans, car loans, mortgage among others. Your net worth can also be described as the measure of your overall financial health since it basically shows what you’d have been left with in case you happened to sell all the assets in order to pay the liabilities. Each single financial move you happen to make needs to be properly aimed at improving the net worth. This basically means either decreasing liabilities or increasing assets. Calculating the net worth will involve subtracting the liabilities from the assets. If you got more assets than the liabilities, you got a positive net worth. And conversely, if you got more liabilities than the assets, you got a negative net worth.
Calculating the net worth is normally a multi-step process. Before you start the calculation, you need to decide whether you desire to calculate your net worth as an individual or jointly (that is, you and your partner or spouse). Also, you need to gather all your financial statements (like credit card statements and bank statements) for reference. First time you do your net worth calculation might take the longest. However, once you get to figure out the method and ways to value the assets, the process will take much less time.
3 Easy Steps To Calculate Your Net Worth
Step 1: Calculating Your Assets
-Add up total amount of cash you have saved from your income. This basically means all the cash you currently have in your savings and checking accounts, not the money you might make or/and earn in the near future.
-Add up total amount of cash you’ve invested in your house/home. You can talk to a realtor or you can have appraisal done so as to determine the actual value of your house/home. Add the value to the assets. (Note: Don’t subtract the amount that you owe in terms of mortgage just yet.) You will subtract that amount when you are calculating your liabilities.