How to Calculate Your Net Worth?

Being organized is extremely helpful especially when it comes to your financial statements. Keeping all your important and financial records organized and calculated helps you see the complete picture. 

What is net worth?

Net worth is the difference between all the assets that a person owns minus all the liabilities that a person owes. Mathematically, to find out your net worth add values in this equation:

Net worth = total assets – total liabilities.

Calculating your net worth is good to get a snapshot of your financial statement or condition. According to the finance experts, these two values of your assets and debts represent progress like no other numbers can. It’s always good to calculate your net worth with time to see the changes in your financial condition and to check where you stand. Simply put, if your net worth is decreasing it means you are becoming poorer. If your net worth is increasing it means you are becoming wealthier.

To make it more clear let’s take an example, suppose you own a car and house worth $70,000 and you have an outstanding debt of around $30,000 then after subtracting the liabilities from assets your current net worth is $40,000.

Now let’s move forward towards the calculation of net worth. However, calculating your net worth is so simple but it includes a few steps to process. Although there are many online calculators available that will help you in figuring out your net worth, doing it manually and thoroughly will help you in understanding your financial loopholes.

Steps for calculating your net worth:

Calculating your net worth for the first time will be time-consuming and probably take the longest but once you follow the methodology and pattern of calculation the whole process will likely take less time. Before starting, gather all your data and financial statements in one place. Here is the easiest step by step approach:

  • Estimate the value of your assets:

The first step is to list down all your large assets.

Liquid assets:

Liquid assets are those investments that can be easily turned into cash without the chance of any sort of loss. Assets that fall into the liquid assets category are:

  • Stocks,
  • Bonds,
  • Mutual funds,
  • Bank accounts,
  • Physical cash,
  • Certificates of deposit.

Illiquid assets:

Illiquid assets are those investments that are not likely to be turned into cash. For instance, if you own a home that is your illiquid asset, not only this, any real estate holding, retirement plans, and partnerships in other businesses are your illiquid assets. Although illiquid assets have several advantages, still they are not considered ideal for any emergency expense because they can’t be used immediately.  Assets that fall into the illiquid assets category are:

  • Real estates,
  • Cars,
  • Collectibles,
  • Antiques.

Once you have created the whole list of all assets, you need to know the current value of these assets by using multiple websites. Another thing is that most of the assets are opinion-based and there is no way to predict and know the value of your assets until and unless you sell them.

  • Make a list of your debts:

The next step is to make a complete list of all your debts and liabilities. Liabilities are much easier to quantify than assets. Liabilities represent all of your outstanding debts. To find out the exact amount of liabilities that you owe you can call your bank or loan officer. Also, you are receiving monthly reminders for them so they are not difficult to list down. Other than this these statements are based on actual numbers, not on any sort of estimates. Debts are further categorized into secured and unsecured debts.

 

Secured Debts:

  • Margin loans, car loans, and equity loans,
  • Mortgage and second mortgage,
  • Rental real estate mortgage.

Unsecured Debts:

  • Personal loans and student loans,
  • Medical bills,
  • Credit card debts,
  • Other outstanding bills
  • Subtract the liabilities from your assets:

After listing all your assets and liabilities, now time to perform some basic calculations. To make it easy for you, try to list individual figures and avoid the decimal points. Once you subtract your liabilities from your assets the resulting figure is your current worth. 

How to improve your net worth?

It’s important to maintain your net worth and improve your lifestyle and financial statements. If your net worth is declining and even negative still there is room to improve it by following these important steps:

  • One of the fastest ways to increase your net worth is to focus on paying off your debts. You can do this by changing your paying schedule of debts and paying them weekly or bi-monthly. This will help you in paying off your liabilities as soon as possible.
  • Another effective way of increasing your net worth is limiting and lowering your spending. Try to make minimum use of your credit card and adopt a slimmer budget.
  • Last but not least, a good way to improve your net worth is to make some extra money. Start doing some freelance work and put in some overtime and extra effort. All these are effective options for improving your net worth.

Importance of Knowing Your Net Worth:

Calculating your net worth monthly is essential. It helps you in estimating your financial statements and condition. It gives you an idea of how you are doing and might provide you with some hints about how to get or stay on the right track. Therefore knowing your net worth is way more important. It also helps you to prepare well for your retirement life. Through your net worth, you can also analyze whether your savings and investments are enough for your future or not. The plus advantage of knowing your net worth is that you will rethink and change your lifestyle according to your current net worth.

There are multiple online calculators available on the internet, where you can easily find out your current net worth, but wait, why calculate them after a month or a week when you can do this just by downloading a single digital blockchain banking platform, Quantopay. 

Through their easy and convenient asset portfolio management, you can keep track of all your savings, their value, budgeting, and investment limits. By using Quantopay you can manage your budget efficiently. They enable their customers to record their assets and funds, keep them protected against theft, and let users plan their budget accordingly. This will help you in leading a debt-free life.

If you are still unaware of your current net worth then it’s high time for you to calculate it and organize all your financial records.

Leave a Reply