How to Calculate Your Net Worth
Net worth is a single amount representing how much money a person would have if he sold all of his assets and paid off his debts .Your
net worth can be a useful tool to measure your financial progress from year to
year. Net worth is essentially a grand total of all your assets minus your
liabilities. There is no magic net worth number, but you should use your net
worth to track your progress from year to year, and hopefully see it improve.
Calculating your
net worth can be easy.
Here's How:
Your
net worth is a snapshot of your finances. To determine your current magic
number, the first step is to take a look at all of your assets, which are
anything of value that you own. Make a list of all these items and next to
each, list the amount it's worth. These typically include:
Assets
- Real Estate -- the current market value of property (house, condo, land, etc.) you own, even if you have a mortgage
- Cash -- any physical cash and coins you have
- Funds in the bank -- all the money you have in a savings, or money market accounts, and any certificates of deposit(CDs)
- Stocks, bonds and mutual funds: also list savings bonds
- Retirement accounts -- includes pension or any other retirement account funds
- Life insurance -- counting any cash value you have in the policy
- Motor Vehicles: the current value of any cars, motorcycles, etc.
- Personal Valuables -- including the market value of jewelry, collectibles ( artwork) and furniture
- Money you're owed -- as long as you have a reasonable expectation of being paid back
In
reality, just because you own these assets doesn't mean you'll be able to
access their monetary value today. Only cash and other highly liquid
assets -- things that you can exchange for a good market value quickly --
are easily accessible. Although it might take months to turn real estate into
its true cash value, use the full market value when calculating your net worth
today. If you're unsure of what something you own is worth -- like an antique
-- is worth, find a professional valuer.
When
you're done listing assets, make a separate list of liabilities and amounts. Liabilities are any debts or
payments you owe to someone else. Here are the most common:
Liabilities
- Mortgage -- the principal or amount you have left to pay on your mortgage(s)
- Home loan -- how much you owe if you have a home loan
- Automobile loan -- the amount you have yet to pay on your car(s) and other motor vehicles
- Student loans -- the amount left on student loans
- Credit card debt -- any balance owed to a credit card company
Once
you're finished taking stock of all of your assets and liabilities, it's time
to calculate the magic number.
The formula can be
expressed simply as:
Net worth = assets – liabilities
Be
conservative with estimates, especially with home and vehicle values. Inflating
the value of large assets may look good on paper, but may not paint an accurate
picture of your net worth.
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