Have you ever seen news about a celebrity’s net worth? If so, you might have wondered about the value of your own assets. With this easy method, you can figure out how much you’re worth now.
What is Net Worth?
Net worth is a number that shows the value of the things you own, such as cars, houses, and savings. To calculate your net worth, you add the value of the things you own. Then, you subtract the money you owe for things like car loans, mortgages, and credit cards.
Another way to think of net worth? It’s the amount of money you would have if you sold off everything you own and paid off all of your debts.
Imagine that all of your assets are worth $50,000. You also owe a total of $15,000. In that case, your net worth would be $35,000.
Net worth is simply a measure of your financial standing. Ideally, you’d have a positive net worth. However, if you have big debts, it’s not uncommon to have a negative net worth.
List Your Assets
The first step in calculating your net worth is to figure out what assets you have. Assets are anything of value that you own, including:
- Equity in a business
Not sure? Anything that you can sell and convert into cash counts as an asset. That means that all of your possessions, down to the dishes in your kitchen, are assets.
While you’re thinking of assets, don’t forget about investments and financial assets. The money in your bank accounts is an asset. The same goes for your investments, retirement account, and life insurance policies.
If you’re just calculating your net worth for fun, you don’t need to add in every tiny asset you own. That set of pencils and pens in your desk probably isn’t going to make much of a difference, after all. As long as you include your major assets, you can get a good idea of your financial status.
Assign Value to Your Assets
Once you have a list of assets, it’s time to figure out how much they’re worth. The trick here is to set a reasonable value for each item.
For each of your assets, ask yourself: how much could I realistically expect to earn if I sold this item for cash today? For the purpose of net worth, it’s a good idea to err on the conservative side.
If you’re not sure where to start, look to online classified listing sites. They can give you an idea of what people are earning similar items. Don’t worry about getting an exact number; as long as you’re in the ballpark, you can figure out your net worth.
When it comes to investments, things can get a little trickier. After all, if you cashed out your retirement fund today, you wouldn’t get the full value. It’s better to use the adjusted value, including any penalties you’d pay for early withdrawal.
Once you have the value of each of your assets, add them up to get your total. This number is not your net worth, but you’ll need it for the next step.
Figure Out How Much Money You Owe
The next step of the process is less fun. For this part, you need to figure out how much money you owe. This figure should include things like:
- Student loans
- Credit card debts
- Car loans
- Mortgage or outstanding rent payment
- Personal loans
- Medical and dental bills
- Financed equipment
When you’re figuring out your debts, it’s important to find the outstanding balance rather than the minimum payment. While the entire balance isn’t due, it is important to understand your net worth. After all, this calculation is assuming you liquidated your assets and paid off all of your debt today.
Things can be a little confusing when you have partially-paid balances on big items such as homes and cars. In that case, you can take the current value of the item and subtract the remaining balance. The result is your asset; the balance is your debt.
Add Your Total Debts
When you have a list of all of your unpaid debts, you can add them up. The result is called your total liability — the total sum that you owe to various people and companies.
At this point, you might be surprised at how much money you owe. Don’t panic; this is normal, especially if you’ve just purchased a home or a car. Over time, as you start to pay down your debt, the number will start to shrink.
Calculating Your Net Worth
The final step of the process is to calculate your net worth. To do so, simply take your total assets and subtract your total debts. The resulting amount is your net worth.
Want to see how your total stacks up to celebrities’ net worth? Check out Comparilist.com for details.
If you have $10,000 worth of assets, and $100,000 worth of debt, your net worth is -$90,000. If you have $25,000 worth of assets and $5,000 worth of debt, your net worth is $20,000.
Ideally, your net worth is positive. As you continue to work, save money, and buy things of value, your net worth should increase.
At the end of the day, net worth is simply an indication of your financial health. If it’s lower than you’d like, you can take action to improve the number. As you continue to grow financially, you can monitor your net worth to see how things are changing for the better.