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What is your net worth?
Your net worth basically tells you how much you’re worth at any given point in time. You take everything you own (called assets) and deduct away any debts (called liabilities).
A simple formula to remember is:
Net Worth = Assets – Liabilities
Pretty simple right?
- Savings accounts
- Retirement accounts
- Real estate
- Other assets
- Credit card debt
- Student loans
- Lines of credit
- Car loans
- Other loans from family/friends
How do you calculate your net worth?
Calculating your net worth is SO EASY! It’s much easier than budgeting, trust me!
Step 1: Add up all your assets
List out all of your assets. Then, assign a market value to all of your assets. We use market value because that is how much your asset is worth at that given point in time. In other words, if you were to sell that asset, this would be the amount of money you could sell it for.
See the example I have prepared below:
The value of your assets will not stay the same as the day you purchased it. Some assets will have increased in value, whereas others may have decreased. For instance, you may have purchased a property that increased 10%. Conversely, your car is likely to lose value as soon as you leave the dealer’s office!
Finding the market value of your assets is not always easy. For things like cash, stocks, etc., it is quite straightforward since you can just log into your account or check your monthly statement.
However, for things like your home value or car value, it could get tricky. I usually use Zillow which gives a fairly accurate estimate of your home value. For car values, Autotrader offers a useful tool for estimating your car value.
Step 2: Add up all your liabilities
Total up all of your liabilities and the balance outstanding for each liability as shown below:
It is easier for track your liabilities as you can find the balance on your monthly statement. You may notice that your liabilities may grow month over month even if you’re making payments. This can be due to interest accumulating on your debts.
Step 3: Deduct your liabilities from your assets
The last step is very simple. Take the result you got in Step 2 (liabilities) and subtract it from the result you got in Step 1 (assets)!
And ta-da! There you have it! Your net worth!
What does my net worth mean?
Well, if your net worth is positive, then congrats! You are technically worth more than nothing! Your goal should be to keep growing your net worth!
If your net worth is negative, then that means that you have more debts than you have assets. In other words, you are in debt. Of course this is not an ideal situation to be in but this is quite typical of new graduates who are bogged down with student loans and haven’t started earning a large income yet.
Most people start with a net worth of zero or negative, so don’t let that bring you down. The goal is to keep trying to grow your net worth!
How can I grow my net worth?
The good news though, is that you can always grow your net worth! By tracking how much you have in assets and liabitiles, you can see a pretty good idea of how your assets and liabilities change from month to month.
In this article, I explained how to track your net worth. I started tracking my net worth only a few months ago and it’s already given me a few insights.
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