If you are currently trying to improve your financial well-being, you may need an answer to the question: What is Net Worth and How Is It Calculated
Determining your net worth is an excellent step in getting your finances on track and we would like to help you with that process.
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In this article, we will be explaining exactly what is net worth and how is it calculated. We will also discuss how knowing your net worth can help you improve your financial situation.
I’m sure you’ve heard about celebrity net worths. Net worth can easily be defined as what we are worth in monetary terms. Our net worth is how much we “have” in way of things or assets of monetary worth, at any given moment in time.
Your net worth is found when you subtract your liabilities, meaning what you owe, from your assets, meaning what you have. Therefore, if you have more liabilities than you do assets, you will have a negative net worthwhile if you have more assets than you have liabilities, you will have a positive net worth.
When it comes to net worth, the main goal for personal financial health is to get a positive net worth and keep it moving upwards over time. By knowing your net worth, you will know how well you are meeting your various financial goals such as saving for retirement or paying off debt.
Calculating your net worth is easier than you might anticipate. Don’t consider annual income since it is meant to be a snapshot of your current financial situation so it cannot take into account past income or future, rather just what is liquid right now.
First, you add up your assets. Next, you add up your liabilities. Finally, you subtract the total number of liabilities from the total number of assets.
These are the assets that you add up:
These are the liabilities that you need to add up to subtract from the above assets:
Some people wonder how simply knowing whether you are in a good spot financially or not can actually help you out. If you never know where you stand, you don’t know if what you are doing is working or if it isn’t.
If you have a positive net worth, then you will know that what you are doing is working and be able to evaluate what liabilities you could get rid of to make that positive number even higher!
If you come out of your calculation with a negative net worth, then you will know that you need to change your ways and do some serious work to improve your situation. You can also find some personal finance tips with us too.
Analyzing your net worth and the finer details of it will give you a plan of attack so you know which liabilities to erase first and which assets you could improve upon. Without calculating your net worth, you will never know how well you are accomplishing your various financial goals.
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