Your net worth is the grand total of all your assets minus your liabilities. In other words, it is the value in cash you would have if you were to sell everything you own and pay off all of your debts.
Many people want to know what their net worth is but don’t know where to start. In this guide, we’ll break down what net worth is and how you can easily calculate it.
What is Net Worth?
The value of an individual or business’s assets subtracted from the liabilities they owe is their net worth. It’s an important number for determining a company’s health, as it provides a clear look at its present financial situation. Individuals, businesses, industries, and even countries can all have net worth, which is a quantitative notion that evaluates the value of an entity. Net worth is often known as book value or shareholders’ equity in the business world.
For individuals, keeping track of your net worth over time might be a good indicator of your financial health. Is it growing? Decreasing? We work hard to earn a living, but what happens once our paycheck arrives in their bank account is not always predictable.
Why is Net Worth Important?
Knowing your net worth is crucial since it can assist you in identifying whether you may be overspending or if you need to focus more on paying off your debt. On the other hand, it can also tell you if you’re in a healthy financial situation.
If your Net Worth is lower than you’d like it to be, you may need to tighten up your budget. Your necessities (including savings and investments) should account for the majority of your spending in order to prevent debt and a low or negative Net Worth.
How to Calculate Net Worth
The following is a simple formula for measuring your tangible net worth:
Total Assets – Liabilities − Intangible Assets = Tangible Net Worth
You must first estimate your total assets, your liabilities, and the value of any intangible assets before calculating your tangible net worth. Cash and cash equivalents, as well as personal property, are included in your total assets. Secured liabilities, such as automobiles, mortgages, and home equity loans, will be included in your Total Liabilities. Credit cards, medical debt, student loans, personal loans, are examples of unsecured liabilities. Taxes on retirement accounts that have been deferred are also included. Intellectual property and goodwill patents are examples of intangible assets that can be valued.
The procedure of calculating your net worth is multi-step. Gather all of your financial statements in one location, such as bank and credit card statements, loan papers, and investment account information. If you’re married, decide if you want to calculate net worth independently or jointly before you begin.
How to Increase Your Net Worth
To start, pay off your debt, build an emergency fund, and max out your retirement and tax-deferred contributions. From there, continue to focus on cutting your expenses, keep savings in places where it will grow, and choose wisely when purchasing vehicles and/or a home.
If you’re curious about your own (or your corporation’s) net worth, or would like to discuss how to improve your overall financial situation, book a free consultation call with Steven to see how Everest Financial can assist you.