Do you know your net worth?
There are lots of calculators online or software that can help you calculate your personal net worth, but to really get the most out of your numbers, you should calculate it yourself. in order to calculate your net worth, you must first understand some basic understanding of what net worth is and what you need to calculate.
What does net worth mean?
Net worth is basically a measure of your overall financial health by looking at your assets (things of value you own) and liabilities (debts).
This becomes a quantitative measure of value that can be applied individually or to corporations, sectors, and even countries. It is best used as a snapshot of a current financial position.
What are assets?
Assets simply means the things you own. There are different types of assets you need to consider:
1. Current Assets
2. Fixed Assets
3. Financial Assets
4. Intangible Assets
Current Assets are short term resources like: Cash ( either in hand or in the bank), accrued income, short term investments, or saleable goods use to make an income stream.
Fixed assets are long term resources like: Land, buildings, equipment/machinery, tools, etc. Fixed assets are not readily available for income and may experience depreciation.
Financial Assets are long term investments (retirements accounts) into securities (equities, bonds, stocks, CD's, etc.).
Intangible Assets are less common for individuals. These are items that do not have a physical presence but include things like patents, trademarks, copyrights, etc.
What are liabilities?
Liabilities simply means things you own money on or toward. The include things like: credit card balances, personal loans, vehicle loans, mortgage balance, student loan balances, etc. Any outstanding debt would be considered a liability.
Calculating Net Worth
The equation for calculating your net worth is fairly simple
Total Assets - Total Liabilities = Net Worth
A great way to figure this out is visually by creating a chart with all your assets listed on one side and all your liabilities on the other. Have each item listed out with their current values. Add all values up and create a total sum of each at the bottom, then follow the equation above.
You found your net worth - now what?
By understanding your net worth you are able to review and make financial decisions based on your understanding of what that means in your financial picture. The overarching goal would be to make decisions that will increase your overall net worth over time, so either increasing your assets or decreasing your liabilities.
This is for educational purposes only. (10/20)