Why you should know your net worth and how to figure it out
Net worth gets thrown around a lot when we’re talking about the uber-rich like Bill Gates or Jeff Bezos, but even us non-billionaires should know what we’re worth.
Figuring out your net worth is actually really straightforward and a great way to take a pulse on your financial health.
Assets And Liabilities
Essentially, net worth is assets minus liabilities. That does require some clarification on what assets and liabilities actually are.
Assets include cash, investments (stocks, retirement funds, etc.), property, and items like vehicles. While a television that you own is technically an asset, it’s also an example of something you probably wouldn’t include in your net worth calculation unless maybe it’s an 80 inch, 4K television worth $10,000+. Don’t include everything you own – just items of significant value.
Liabilities are the debts you currently carry and include credit cards, car loans, mortgages, student loans, etc.
The Formula To Calculate Net Worth
Once you’ve made a list of your assets and liabilities, you can begin calculating your net worth. Add up all of your assets and subtract your total liabilities.
For example, John Smith has $100,000 worth of assets and $45,000 worth of liabilities. That means he has a net worth of $55,000 (100,000 – 45,000).
Follow the same process to easily calculate your own net worth.
How To Improve Your Net Worth
Now that you know your net worth, you may decide you want to build on it.
The best ways to improve your net worth and your financial situation are to pay off as many debts as you can as quickly as possible and accumulate more assets i.e. investments, property, cash, etc.
Don’t get discouraged if your net worth isn’t up there with the rich just yet— you can make great strides when you set your mind to something and stick to it!