How Do You Calculate Net Worth?
It is completely normal to have a vested interest in knowing your net worth. Staying on top of this personal finance benchmark is useful whether your net worth is healthy, somewhat inadequate, or even sagging into the negatives. In fact, determining your net worth and keeping tabs on it is a little like making a budget. What you don’t know will hurt you when it comes to what’s going on inside your wallet.
HOW DO YOU CALCULATE NET WORTH?
In a nutshell, your net worth represents the value of your assets minus your liabilities. It’s the amount of money you would have left if you sold everything you have of value and paid off all your debts. Granted, that’s not very likely to happen, but determining your net worth provides a great snapshot of your current financial health.
If you’ve never figured out your net worth before, brace yourself for a dose of impartial reality. You may not come out looking very strong; in fact, your result might even be negative. If you have a lot left to pay on a mortgage, student loan, or car loan — or if you regularly carry balances on your credit cards — your net worth is more likely to end up in the negatives.
Don’t worry too much. All that means is you owe more than you own, and that’s something that you can improve steadily over time. A positive net worth means you own more than you owe — a great sign for a strong financial future.
DETERMINING YOUR NET WORTH ISN’T VERY COMPLICATED
- Make a list of all your assets and their current values. Your assets include your current checking and saving account balances, which includes your certificates and money market accounts, retirement accounts (401(k) plans, IRAs and SEPs), any stocks and bonds you have, and the value of your home and cars. If you want to go into greater detail, you could include other physical assets such as jewelry, art, collectibles and other valuables, but it’s not necessary for a workable result.
- Make a list of all your debts and their totals. Your debts include what’s left to pay on your mortgage, student loans, car loans, credit card balances, personal loans, and any other ongoing debt.
- Determine your net worth. Subtract the total value of your assets from the total value of your debts. The number you get is your net worth.
Determining your net worth removes doubt about how you’re doing financially. If your net worth is negative, you’ll know you need to double down on wiping out debt and work on building assets and savings. And if your net worth is positive, you’ll know you’re on the right track. In either case, recalculating your net worth periodically ensures your financial health is headed in the right direction and building security for the rest of your life.
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