How to Calculate Your Own Net Worth
Net Worth - It may sound like a big financial word, but it is simple process and a tool that you can use to see your progress towards your financial goals. In simple words, your net worth is the total of all your assets minus the liabilities you have. The bigger the figure, the better you are doing financially. If the number is a negative, it means that you are in financial trouble and are headed to financial disaster if you don't take measures right away. A negative number means that you have more liabilities (debt) than you have assets and income.
The process of calculating your net worth is a simple one. The goal should be to improve year after year, and see your net worth increase. The process takes less than half hour, depending on how organized you are with your paperwork.
First, make a list of all your assets, everything you own, and any money or investments. Tangible property and intangible property as well. Gather all your bank statements from savings accounts, CDs, retirement accounts ... that is your liquid money. You must also take into account any personal valuables such as precious stones jewelry, valuable collection, expensive antiques, and any other items that have real monetary value. Next, add all those items and that amount will reflect your assets value.
The next step in the process will be to do the same thing with your liabilities. Liabilities are anything that you owe and make payments towards, such as the balance of a car loan, a mortgage, a boat ... anything that takes money from your pocket and has an outstanding balance. Sum it all and the amount you get will be your liability amount.
The third step is to subtract the liabilities figure from the assets figure (assets - liabilities = net worth). The total figure equals your Net Worth. This figure may be small, large, or even a negative number; however, the important issue is that now, you know a bit more about your financial picture and can take steps to improve it. Every year, repeat this process and if you see the numbers improving, you know that you are working towards increasing your net worth; however, if you see a negative number increasing or a negative number that was not there the previous year, then you will know that you are doing the opposite of improving - you are getting into financial debt, and deeper.
If you see that you cannot handle your finances on your own you should think about contacting a financial planner to help you come up with a budget and financial plan to get out of debt, and increase your net worth. A financial planner will help you reach your financial goals and will help you understand the necessary changes that you have to make to reach those goals. A workable plan according to your particular situation will be suggested, and modified as needed as your situation changes.
Many people will argue that a net worth is only a number, but in reality, it is more than that. It shows how you have been handling your finances and presents a true financial picture, and a possible financial future, as you compare the figures year after year. It also shows your level of commitment to your financial goals. It may be a great tool to predict financial problems in the future, if a negative figure keeps growing or if a positive net worth keeps shrinking.