How to Calculate Your Net Worth
December 12, 2019
When we think of net worth, it’s usually concerning someone else—a celebrity, boss, or person who seems to be doing extraordinarily well. But what of our own?
Your net worth is just as interesting and important as that of someone else’s. As defined by Investopedia, this figure is “the measure of wealth” and “the difference between assets and liabilities”. More simply put, your net worth is the value of all that you own minus what you owe. It’s a good indicator of one’s financial well being and can be a great temperature check for your goals and debts, too.
What is included in net worth?
Let’s start but breaking down a few key terms:
- Liabilities: Your financial liabilities are the combination of all that you owe. In your personal finances, your liabilities might include loans (student, car, home, etc.), unpaid credit card debt, and generally anything that hasn’t been paid in full or that you owe to another entity.
- Assets: A financial asset is formally defined as “a liquid asset that gets its value from a contractual right or ownership claim”—that is, anything you own that has monetary value. Examples of your assets include bonds, stocks, cash, etc.
What’s included in your net worth is a matter of how you’ve been handling your finances as well as where and what period of your life you’re in at that given moment. This figure is subject to change and could be affected by a myriad of things including whether you’ve just taken out or paid off a loan, bought a house, or even won the lottery. The ebbs and flow of your finances are all taken into consideration when it comes to your net worth.
How do you begin to calculate your net worth?
To calculate your net worth, you’ll want to begin by separating all the ways that your money is allocated into assets and liabilities. Name each one and denote each with its monetary value. You’ll want to be as exact as possible with these numbers as they will be representative of that given point in time.
Once you’ve tallied all your assets and liabilities, subtract your liabilities from your assets. The number you end up with is your net worth. Completing this process by hand is a good way to stay familiar with your finances on an individual basis. However, if you’re finding this calculation to be cumbersome, you might consider using a net worth calculator.
As you do this work, you’ll want to make note of whether your net worth is going up or down over time. Typically, increasing net worth can indicate that your finances are proceeding successfully whereas a decreasing net worth might indicate a problem with your assets or your debts outweighing your liquid assets.
Knowing the final figure of your net worth and keeping track of this number can help you reorient your savings and financial goals. Whatever you decide, know that calculating your net worth is a step in the right direction of being on top of your assets and becoming more financially responsible.
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