How to Calculate Your Net Worth

How to Calculate Your Net Worth

What is net worth?

Net worth is a concept used to measure your wealth. If your assets (what you own) are greater than your liabilities (what you owe) then you have a positive net worth. But if your liabilities are higher than your assets you have a negative net worth.

Net worth is a helpful measure to assess your financial health. It is an important factor in determining whether you can buy your own house and how much more you need to save for your retirement.  

How to calculate my net worth

It’s very easy to calculate your net worth. Start by listing all of your assets, estimating the value of each one, and then adding them up. You should include things like:

  • Cash
  • Money in the bank 
  • Stocks, bonds and mutual funds
  • Retirement accounts
  • Your vehicles
  • The market value of your home
  • All the personal items in your home (furniture, collectibles, jewellery, etc.)
  • Cash value of any insurance policies

On a separate piece of paper, list all of your liabilities (your debts). Here are the most common types of liabilities:

  • Student loans
  • Mortgages
  • Car loans
  • Credit card debts

Now that you have calculated the total amount of your assets and the total of your liabilities, it’s time to subtract your liabilities from your assets.

The formula is simply: assets – liabilities = net worth.  

What if I have a negative net worth?

Don’t panic if your calculation on your net worth turns out to be negative. Many people have a negative net worth for a variety of reasons, for instance, they may have recently graduated from university and have student loans but have not yet had time to accumulate many assets. 

However, a negative worth is not always benign. It may mean that you’re over-borrowing money to support a lifestyle rather than building assets. Excessive car loans, personal loans and credit card debts can be real wealth destroyers. This is where the concept of net worth comes into its own because it cuts through the debt funding trappings of wealth to highlight your real financial position.   

Final word

Net worth is a valuable tool to work out if you are moving in the right direction financially, so calculate it regularly. 

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