Are you curious about your net worth? You should be! Knowing your net worth is one of the most important steps to taking control of your financial future.
This article will teach you everything you need to know about calculating your net worth, including what it is, different methods for calculating it, and examples of how to do it.
After reading this article, you’ll be able to figure out your net worth and understand what it means for you!
Your net worth is calculated as the sum of your assets less the sum of your liabilities. It is, in other words, the total value of your possessions minus your debt.
Your assets are everything you own and can use to pay your debts. They include your savings, your home equity, and your stocks and investments. Your liabilities are everything you owe, including your mortgage, your credit card debt, and your student loans.
Calculating your net worth is a simple way to see how much progress you’ve made in paying off your debts and building up your savings. It’s also a good indicator of whether you’re on track to reach your financial goals.
There are different methods for calculating net worth, but the most common one is to subtract total liabilities from total assets. This will give you your net worth number.
For example, let’s say you have $50,000 in savings, $30,000 in home equity, and $10,000 in stocks and investments. However, you also have $20,000 in credit card debt, $15,000 in student loans, and $5,000 in other debts.
Your total assets would be $95,000, and your total liabilities would be $40,000. This means your net worth would be $55,000.
Now let’s say you paid off your credit card debt and now only have $10,000 in student loans. Your total assets would still be $95,000, and your total liabilities would now be $25,000.
This means your new net worth would be $70,000. As you can see, paying off debt can have a significant impact on your net worth!
Now that you know how to calculate your net worth let’s look at a few examples.
- Savings: $5,000
- Home equity: $50,000
- Investments: $10,000
- Mortgage: $40,000
- Credit card debt: $2,000
Net worth = Assets – Liabilities
Net worth = $65,000 – $42,000
Net worth = $23,000
- Savings: $15,000
- Home equity: $30,000
- Mortgage: $25,000
Net worth = Assets – Liabilities
Net worth = $45,000 – $25,000
Net worth = $20,000
- Savings: $10,000
- Home equity: $40,000
- Investments: $30,000
- Mortgage: $50,000
Net worth = Assets – Liabilities
Net worth = $80,000 – $50,000
Net worth = $30,000
**There is a school of thought that your personal residence should not be included as part of your net work as it’s not necessarily an “asset” by the definition (asset should generate income).
Your net worth is a good indicator of your financial health. A high net worth means you have a lot of assets and few liabilities. This means you’re in good financial shape and are on track to reach your financial goals.
A low or negative net worth means you have more liabilities than assets. This isn’t necessarily a bad thing, especially if you’re young and just starting out. But it’s something to keep an eye on so you can make sure you’re on track to reach your financial goals.
Calculating your net worth is also an excellent way to see how much progress you’ve made over time. If you calculate your net worth once a year, you’ll be able to see how much your financial situation has improved (or worsened) over time.
This can be an excellent motivator to keep up the good work (or make some changes)!
No matter what your net worth is, the important thing is to keep track of it and understand what it means for you. By doing this, you’ll be able to make the best decisions for your financial future.
Use Personal Capital to track your net worth. It’s completely free and allows you to import all your info. I’ve been using it for years!
If you want to improve your financial situation, there are a few things you can do to raise your net worth.
First, you can work on paying off your debts. This will reduce your liabilities and increase your assets. You can also work on increasing your savings and investments. This will also increase your assets.
Finally, you can work on increasing your income. This will give you more money to put towards paying off debts, saving, and investing.
Raising your net worth takes time and effort, but it’s worth it! By taking these steps, you’ll be well on your way to financial success.
In order to take control of your finances, you must make sure that your outgoing costs are smaller than your income in order to have money to invest for the future.
You may be thinking that if you were making more money, then you would have more left to save. However, it is actually a known and accepted fact that a person’s income has little to no influence on whether they have money left over for investing.
The only way to accumulate excess is to spend less than you make rather than all of your income.
Even professionals like doctors and lawyers, who make well over $100,000.00 annually, frequently retire with no more net worth than employees of factories or offices.
Why do high earners not enjoy prosperous retirements? Why don’t they have a higher net worth than someone who makes a lesser salary?
It is pretty simple. It appears to be in everyone’s nature to spend whatever they earn. Some people even charge their credit cards for excess spending.
The only way to break this cycle is to recognize that it is happening and make a serious effort to break this behavior. For example, the more your income increases, the more you spend, so start cutting back on your spending so you have more money for investments.
The 10/90 plan is the best strategy for achieving this. Simply put, this strategy means that as soon as you get paid, 10% of it is set aside for investments.
Then rely on the remaining 90% to support yourself. Set aside 10%, then pay all of your bills and go grocery shopping. And after that, you can spend whatever is left over.
The majority of individuals go about things incorrectly; they pay their bills, go shopping, and then squander what is left over, never setting aside any money for savings or investments. You can reduce the temptation to spend it by withdrawing the investment funds first.
The path to wealth is not decided by your income but rather by how you use it, how much you save, and how much you invest.
It would be best if you took charge of your money. Finding out where your money has been going and changing your spending habits to fit the 10/90 plan are two of the best methods to start controlling your finances.
If you make a list of your monthly net income, make a list of the necessities that you must purchase in a separate column. From your previous months’ bank statements, you should be able to calculate an average for telephone, gas, electricity, insurance, and other monthly bills.
Calculate the average amount spent on gasoline and grocery shopping. Then, include any additional utilities that may be required.
The maximum amount of savings you might possibly make for each month will be revealed when you subtract the second column from the first.
This number can be pretty astronomical, leaving you wondering where all the extra cash went. So another beneficial learning exercise is just to keep track of every dollar you spend for a couple of weeks, along with what you spent it on.
You’ll quickly discover that there are a lot of wasteful costs, frequently brought on by impulsive purchases, where you’ve spent money on things you didn’t actually need or want and could have easily done without.
You will be taking control of your finances and well on your way to starting your investment journey, which will enable you to have a financially secure future for yourself and your children when you can start to recognize your spending habits and start to think about whether or not you are spending your money wisely before you hand it over.
It is possible to amass a great deal of wealth, even on a modest income, if you are disciplined about how you spend your money. The 10/90 plan is one way to ensure that you begin saving and investing as much of your income as possible.
By tracking where every dollar goes for two weeks, it becomes easier to identify unnecessary expenses that can be cut out in order to have more money available for savings and investment.
In addition, when you take control over your finances, you put yourself in a better position to achieve financial security for yourself and your loved ones.
So why not start today? First, grab all of your recent bank statements and calculate your monthly net income. Then, make a list of all of your necessary expenses.
Finally, subtract the second column from the first to reveal how much money you could be saving each month!