Body health and financial health must always be checked on regular basis, to ensure that you stay fit and safe. For the body you have monthly health check reports but your wealth report will probably show your assets including house, jewels, car or bank balance. Are these assets truly worth to be your net worth? No, they are not! Then what is the meaning of net worth? And how do you determine it?
Definition of Net Worth
In simple words, net worth is a system that is used to find out the exact status of your finance. It is not complex and can be adopted by each and everyone to discover, if they are fiscally strong or in a chaos!
Before delving deeper in net worth, you need to understand why it is necessary to do calculate it. Here are 5 reasons on why to calculate your net worth.
It helps you to find the financial status at this moment, which may be better or worse.
You can monitor your various investments regularly.
Comparing your previous net worth calculations with the present analysis can help you to track and understand your personal finances.
It motivates you to keep an eye on your spending, works to repay the debts and save for big purchases in future.
You can easily take the help of net worth calculator to calculate in few minutes.
Now, you must be convinced that gauging your net worth will help you to keep yourself on track. Without any record, you may go on a shopping trip and spend extravagantly thus piling debts to be paid. What a messy situation?
Just comparing your financial status with some else at face value is not accurate as there are several variables in everyone’s life. How can you compare your net worth with a child in New York for example? Bear in mind that if your net worth amount is disappointing, then first work on enhancing that percent change. If that is modified, you will be doing well again.
Take some time every month and calculate your net worth to keep track of the changes. To get the accurate image of your financial standing assess your assets and liabilities. Add all your assets and minus liabilities form the total, thus you will get to your net worth.
Calculate Your Net Worth
A simple formula that gives correct results is:
Sum of each and every asset – sum of each and every liabilities = Net worth
However, for using this simple formula, you must first get familiar with your assets and liabilities. Here is a checklist to recognize your assets and liabilities.
Assets – If you own a home, then its market value is taken as the asset value. Similarly, you can include the market value of farm house or land on the asset list. Other assets you own like shares, mutual fund investments, car two wheeler and jewelry can be included, after evaluating its market price.
The bank balance, cash at home, fixed deposits, bonds, provident funds, monthly income from post office schemes, national saving certificates and many other investments made by you can be taken as assets. Do not forget, to take into account the due amount that is to be received from colleagues, friends or relatives.
Liability – Liability is somewhat tricky to assess! Some of them are the complete outstanding principle on home loan that is taken is a liability. Similarly, include the amount of outstanding payment on car, two wheeler, personal loan, educational loan or any other outstanding loan. The total amount on credit card payable must be considered. The unpaid bills must also be added in the list of liabilities.
Determine Your Net Worth
The total of the assets and liabilities are prepared. Now, use the simple formula that is from the total asset subtract the total liabilities and you get your total net worth. This figure is your real worth and your accurate financial status.
Higher net worth amount signifies your high percentage of wealth. It is sensible to adopt this formula regularly to get the ideal financial position image that will lead you towards a secure future.
Negative net worth may make you panic but increase it by paying the debts and invest money. In addition, reduce your spending and save money. Make a goal to increase your net worth form the previous calculation, which signifies that your expenses were less than last time. This is the best way to check your own progress.