So, What's Your Net Worth?
Have you been wondering “What is my net worth?”. When it comes to calculating net worth, many people believe that ignorance is bliss, and there are also many people who absolutely love doing it. Regardless of your viewpoint, it is a really important exercise to do to get a clear view of where you currently stand financially.
Your net worth is the value of all of your assets, minus the total of all of your liabilities. Put another way, it is what you own minus what you owe. If you owe more than you own, you have a negative net worth. If you own more than you owe you will have a positive net worth.
In order to get where you want to go in life, you need to know where you are. You can get a view of your financial position by generating a personal net worth snap shot using our tool. Over time your net worth will change as your assets earn interest or are depleted and your liabilities increase or decrease. Knowing where you stand with your net worth based on your age can also help you decide on what money moves will be most beneficial to increase your worth based on your financial goals.
How do I calculate my net worth?
It’s pretty simple to calculate your net worth. You calculate it by subtracting your liabilities from your assets (Assets - Liabilities). You can do this on a simple spreadsheet or paper on your own by making a list of all your assets and totalling their value up and then doing the same for your liabilities, however, you can use of Free Net Worth Calculator here which is much easier. Once you have a total number for your assets and also your liabilities, subtracting that total liability number from your total assets number will give you your net worth. Our Free Net Worth calculator will show you visually how your net worth looks.
What are assets?
Of course, any cash you have saved in your savings accounts is an asset. However, assets are also things of value that can be converted to cash. These can include personal property such as jewellery, collectibles, vehicles (less amount owed), etc. Investments such as stocks and shares, bonds, annuities, retirement plans, pensions, and some life insurance policies are types of assets. Your home or property are also assets, however, the amount of the asset will be the equity minus what is owed on the mortgage loan. It is however important to remember that some assets can be impacted by depreciation.
What are liabilities?
Liabilities are any debts you owe. For instance, the amount owed on your mortgage loan, vehicles if they are not paid off, credit card debt, and student loans. Basically, any money you owe is a liability that will be deducted from your assets. For example, let's say you have £350,000 total in assets and your liabilities are £150,000 total. After all of your liabilities are paid off, your total net worth would be the remaining balance of £200,000.
Using a net worth calculator
Calculating your net worth may seem overwhelming, but net worth calculators simplify the process. Using a net worth calculator also ensures you are accurately counting all of your assets and liabilities, so you get the correct balance of your net worth. Gather up all the information on your assets and liabilities.
Negative net worth
Negative net worth can be due to the fact that you haven't earned/invested enough income to offset your debt. For example, it is not uncommon for younger people who have student loans but have only earned a few years of income to have a negative net worth. Another example of negative net worth could be due to overspending and having large amounts of credit card debt and not much in terms of assets to offset the debt.
Increasing your net worth
Every time you make a payment towards debt or put money in your savings account or acquire assets like investment properties such as Buy-To-Lets, Commercial Properties, Semi Commercial Properties etc, you are increasing your net worth. Even if it remains negative for a while when you make a debt payment you reduce your total amount of debt which in turn increases your net worth. So don't be afraid or discouraged by what you see if you end up with a negative number.
It's a good idea to track your net worth every month or every couple of months so you can see the progress that you are making. Building wealth takes time and is a journey. You may be scared to ask yourself, what is my net worth? However, the sooner you crunch the numbers, the faster you can start increasing your net worth. Make it a goal to develop good financial habits, stay consistent with your debt pay off, savings, and investing, and most importantly, believe that you can. Increasing your net worth can help you achieve early retirement and give you a secure financial future.
Try our Free Net Worth Calculator here and see what your personal net worth is.
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