There are plenty of net worth calculation software packages out there, but it is also important that you understand how it is done so that you are able to do so on your own. But how do you calculate your own net worth? It is a simple procedure if you pay attention to the details.
In this article, we are going to teach you how you can calculate your own net worth. However, before we do that, it is important to understand what net worth really is. So, keep reading to learn more!
What Does Net Worth Mean?
To put it simply, your net worth is all the monetary value you hold, including all the valuable things that you own (your assets), minus your liabilities (the debt that you owe). Your assets include the cash that you have at hand, your investments, your real estate properties, including your home, your automobiles, and any other item of significant value.
On the other hand, your liabilities include all the money that you owe on your assets, such as a mortgage, car loans, student loans, personal loans, etc. A person’s net worth is a great indicator of their financial position because it represents what the person will have left if they were to pay off their debt by selling all their assets. Therefore, if you want to increase your net worth, you have to make financial decisions that allow you to reduce your liabilities and increase your assets.
Steps to Calculate Your Own Net Worth
If you want to calculate your own net worth, then you’re at the right place because we’ll take you through the process step-by-step. Calculating your own net worth isn’t as difficult as it sounds. All you need is time, your financial information, paper, and a calculator. Let’s take you through the process in the step below:
Step #1: List down the estimated value of all of your assets
The first step is to create a list of all your assets along with their estimated value. In this list, you need to include all assets, including your current and savings account balances, retirement savings, bonds, the value of the stocks that you own, the value of your home and other real estate properties, and the value of your automobiles. If you own any other asset with a significant value, then make sure to include that in the list as well.
Although some of the assets will have a fixed, known value, such as your bank statements, there will be assets for which you’ll have to make estimates. You can look at the market value of these assets to make an accurate estimation.
After you have listed down all your assets along with their value, add them and write the sum total in clear numbers. This amount is the total value of all your assets.
Step #2: Make a list of your debt
Now that you have a list of your assets, you need to list down all your debts. In this list, you need to include all the types of loans and debt that you owe, such as your mortgage, credit card balances, student loans, personal loans, auto loans, etc.
Make sure you write the name of the loan and then add the amount on one side in the form of a list. Once you have the list, add all the debt amounts and then write down the total figure at the bottom. This amount represents your liabilities, all the debt that you owe.
Step #3: Subtract total debt from assets
In the final step, you need to subtract the total amount of debt from the total of your assets. The amount you get as a result is your net worth.
Example of Calculating Net Worth
Now, let us make the procedure even simpler for you by explaining it with the help of an example. Let’s suppose an individual named Joshua Cooper is 35 years old and has the following assets and liabilities:
- A home valued at $250,000 with a mortgage liability of $15,000.
- A car which is worth about $7,000 with all its debt paid off.
- Credit card balance of $1,000.
- $5,000 in his savings account.
- $25,000 in his 401 (k).
- He owes $20,000 in student loans.
Let’s add all of Joshua’s assets:
- $250,000 home
- $7,000 car
- $25,000 401(k) contribution
- $5,000 savings
Total assets = $287,000
Now, we need to add all of his debts:
- $1,000 credit card balance
- $20,000 due in student loans
- $150,000 mortgage
Total debts = $171,000
Finally, we calculate Joshua’s net worth as follows:
Jason’s Net Worth = $287,000 – $171,000 = $116,000
Now we know that Joshua has a net worth of $116,000.
Can You Make Your Net Worth Bigger?
If you want to increase your net worth like a celebrity, then you need to work on increasing your assets and reducing your liabilities. Even if you can make one of your assets grow in value or one of the debts grow smaller, you’ll be able to increase your net worth.
So, if you’re committed to increasing your net worth, then you need to come up with ways to save more and pay off your debts quicker. You can start by reducing your spending and making smart investment decisions.
How Often Should You Calculate Your Net Worth?
There is no hard-fast rule for the number of times you can calculate your net worth. However, it is not useful to do it every day or too frequently for any change to have happened. Consider calculating your net worth every two months or after making any major financial decision or change.
Calculating one’s own net worth is not a difficult task if you understand how to do it. It is important to have an awareness of your financial position and to check your net worth periodically. By following the steps that we discussed above, you can easily calculate your own net worth without any assistance