How to Calculate Your Net Worth

Your financial wellbeing is calculated in many ways. Your net worth may be an incredibly valuable method for a year-to-year evaluation of your economic condition and financial growth.

Net Worth basically a large amount of all of your income, minus your liabilities. Your net worth is the money you earn when you add everything you own from the value of your home to the cash in your bank account and deduct from it the value of all your loans that may include a home loan, vehicle or personal loan.

If you are asking what your net worth is, know how to measure it and view it.

What does your Net Worth tell about your Financial Situation?

net-worth

Theoretically, if you sold everything you own and paid off all of your debts, your net worth is the value in cash that you would have. This figure is, in fact, negative in some situations, meaning that you own more in liabilities than in cash.

Although this isn’t a perfect scenario, people barely out of college or beginning their careers are very normal. For that situation, your net worth is just a calculation of how much debt you will actually owe if you drained your savings balances and sell all you own to bring your debt against.

It is more important what the net worth metrics are than the (generally unrealistic) calculations that are made to achieve the figure.

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In fact, there is no universal magic net worth amount you can aim for when it comes to your financial wellbeing, so to speak. Nevertheless, you can use your net worth to chart your success year after year, and ideally see it increasing and improving over time.

Net worth meaning (in Financial Terminology):

Net Worth of an Entity is the amount you would receive if you minus the sum of liabilities from the sum of assets.

* Positive net worth signifies the individual is holding more assets than liabilities.

* Negative net worth signifies an individual with more liabilities than properties, so the individual is in debt.

Usually, net worth is used to assess the financial wellbeing of an individual or an institution, since it shows the actual financial condition. Let’s talk about what assets and liabilities are:

ASSETS:

The asset is a resource that helps the company earns income. It contributes wealth to every single company or individual’s wallet. The higher the liabilities are overweighed by assets, the better the financial stability and vice versa. Assets include the following:

                * Real Estate

                * Machinery

                * Office Equipment

                * Inventory

                *Investments

                * Cash

LIABILITIES:

Liabilities are commitments that your organization needs to fulfill. It causes the loss to any organization or individual’s capital. The more the liability, the more harm it causes to the financial condition and vice versa. Liabilities include the following:

                * Personal Loans

                * Home Loans

                * Tax Owed

                * Money owed to payable accounts.

Calculate Your Assets:

                * Make a List of your assets by including your:

                                –  Value of any real estate property that you own

                                –  Value of any or all vehicles you own.

                                –  Value of the business you own.( if you are a Businessman)

                * Take the Latest Statement on your liquefied assets including your:

                                –  Savings account or accounts

                                – Other Investment Accounts

                                –  CASH

                * Make a list of other value added personal items, including:

                                –  Jewellery

                                –  Coin Collection

                                –  Antiques etc.

Now by adding all your assets that you have listed, you will be able to get the figure of your total assets.

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Calculate Your Liabilities:

net-worth-value

* Make a list of all your outstanding Liabilities which include, your home loan or your car loan or personal loans.

* Make a list of your Personal Liabilities like Credit cards or any personal debt you might owe.

* Now by adding all Liabilities you will be getting your Total Liability Figure.

How to Calculate your Net Worth?

* If you simply subtract the Liabilities from the Assets you have, you will gain your net worth. (Irrespective of the positive or negative figure you get)

* If you repeat these steps every year you would be able to gain a picture of your yearly financial growth or downfall.

***        Net worth = Total Assets – Total Liabilities                        ***

Importance of Calculating the Net Worth of an Entity:

Net worth provides you with a good view of your financial status and can help you make a more informed decision. Here are some advantages:

* If you calculate your net worth then you will be able to determine the starting point and to what degree you intend to spend to reach your long-term financial goals

* Learning the actual net worth makes it much easier to set financial targets and recognize trouble areas

* Growing and recording positive net worth not only ensures a healthy financial path, but it also allows loans to be made available and credit conditions more desirable