You may have read in newspapers or heard on cable news of companies reporting their increasing market capitalization, net worth or value. The higher the number grows, the more worth the company is valued. Businesses aren’t the only ones who can have a net worth. In fact, it is a terrific idea to calculate your net worth.
If this isn’t something you do annually, then I highly recommend you start because calculating your net worth is an extremely valuable tool that determines your financial health and your economic status in the event you had to liquidate everything.
While there is software readily available on the market, I wouldn’t waste your money because it is a figure that requires only basic math and some time. It is simply the difference between what assets you have from your liabilities. Below I will break this down for you so you can start calculating your net worth.
WHAT IS REQUIRED TO CALCULATE YOUR NET WORTH
While the math is very straightforward, the most difficult or challenging piece to the calculation is getting all of your documents together in one easy to access location. Financial planners will require these documents as well which include the most recent bank statements for checking or savings accounts, investment account balances, retirement assets, precious metals you may physically own, automobile and home value, etc.
Here is a free online software that is highly secure where you can calculate your net worth for FREE. I love this company because they visually show you charts and explain where your current financial situation is. How cool is that?
I recommend printing and securing all recent statements you come across for any assets over $500 and all debts owed.
WHAT IS AN ASSET
Simply put, an asset is something of value. In terms of calculating your net worth, this will include the value of items such as your home, automobiles, RV, jewelry, cash, savings, etc (you get the picture).
The true value of an asset is defined by you or me, but rather, it is what the market is willing to offer to purchase it should you have to sell it today. While there are different models to determine a value, we are keeping it simple here in this blog. For automobiles, you can search Kelly Blue Book to determine how much you can sell it for to a local interested buyer, as well as, how much a dealer would pay.
For items that may be more difficult to price, browse online at auction sites such as eBay and see how much items are selling for on the website.
WHAT IS A LIABILITY
These are the debts you owe someone or some business. Do you list your expenses, rent, insurance bills because a net worth tells a story about your financial health should everything be liquidated. Because your rent and insurance can stop today (theoretically--I write that because of lease terms), but you must list your current mortgage balance, auto loan balances, how much you owe if you have a Home Equity Line of Credit (HELOC), credit card balances, etc.
CALCULATE NET WORTH
After the hard work is done, now comes the easy part. The calculation for Net Worth is Assets minus Liabilities. That's it!
Assets - Liabilities = Net Worth
Knowing your net worth can help guide your financial journey. Should you find yourself in a negative position, this better motivates you to pay down debts, boost up your savings, and start realigning any financial goals you may have for the future.
Now that I have explained why you need to calculate your net worth and how to do it, be sure to check out Personal Capital's Net Worth Calculator.
Be sure to check out my YouTube video on Net Worth and please give me a Thumbs Up! See you next week.