Are you looking to get a better handle on your financial situation? Understanding your net worth is a great place to start. Calculating your net worth can help you understand how much money you owe and how much you own—giving you a better picture of your current financial situation. Keep reading to get a better understanding of the basics of calculating your net worth.
Determining the Value of Your Assets
Perhaps at some point, you’ve searched up a celebrity or well-known figure’s net worth by simply entering their information on a search engine, such as “Perry Mandera net worth.” But maybe you aren’t a public figure and your net worth is more of a private matter. Determining the value of your assets is an important part of understanding and calculating your net worth. Assets are anything you own that can be sold for money, such as a house, car, investments, or savings accounts. The value of these assets is determined by subtracting any related debt from their current market value. For example, if you own a house with a mortgage balance of $200,000 and its current market value is $400,000, then it would have an asset value of $200,000 (the difference between the two figures).
Investment accounts are typically valued at their current market price on the day they are being calculated while other items like cars may require some research to determine their true fair-market values. Once all the individual values for each asset have been established, you add up all those figures together to get your total asset figure. After both sides are added up, your net worth should give you a clear picture of how much wealth you currently possess in terms of real dollars so that proper financial decisions can be made moving forward.
How to Calculate Your Net Worth
Calculating your net worth is an important step in understanding your financial health. It consists of adding up all of your assets (what you own) and subtracting all of your liabilities (what you owe). Your net worth is the difference between these two numbers and represents a snapshot of how much money you have available to pay for things like bills, investments, or lifestyle expenses. The first step in calculating your net worth is to list all the assets that you own such as cash, savings accounts, stocks, investments, real estate properties, vehicles, etc. You should include any current market value associated with each asset if possible. Once you’ve listed them out, it’s time to add them up and get a total number for all assets combined. This will be referred to as “total assets.”
Next, you need to list out all the liabilities that are associated with our assets such as mortgages on real estate properties, student loans, or other forms of debt owed. Again, if there are due dates on these debts, then try and include those details, too. Now, tally up what you owe from these liabilities—this total figure will be referred to as “total liabilities.” Finally, you can subtract your total liabilities from your total assets—this figure is known as “net worth” which translates into exactly how much money one has at their disposal after taking away what one owes from creditors and banks. If this calculation results in a negative figure, then it means you own more than you have, so some form of action needs to be taken. For example, reducing spending habits or increasing income sources are great ways to improve your net worth. On the other hand, if it results in a positive figure, then it’s good news! With proper management and planning, you can make sure your wealth keeps growing over time, too.
Overall, understanding the basics of calculating your net worth is important in order to gain an accurate understanding of your financial situation and make informed decisions about your future. By tracking your assets, liabilities, and net worth over time, you can identify trends in your financial health and make changes to better manage your finances.
