If you are wondering how to calculate your net worth, today is your
lucky day. To get a good indication of your financial condition you will
need know how to prepare two simple financial statements.
Take a look at what you own—and what you owe.
You may own a car or a home—or have money in the bank. Add it all up,
and it can seem substantial. But to truly know what you own, you have
to factor in what you owe.
The combination of what you own (your assets) and what you owe (your
liabilities) makes up your personal net worth. Knowing your net worth is
important for two reasons:
- It lets you understand your current financial situation.
- It gives you a reference point for measuring progress toward your goals.
How to set up a personal net worth statement.
Setting up a net worth statement is as easy as creating a simple checklist and doing some basic math.
Prepare a balance sheet
A balance sheet shows you the difference between what you own (your
assets) and what you owe (your liabilities) which sums up to your net
worth.
To get started, you will need to list all assets and liabilities:
Examples of assets:
-
List your assets (what you own), estimate the value of each, and add up the total. Include items such as:
- Money in your bank accounts
- Value of your investment accounts
- Your car
- Market value of your home
- Business interests
- Personal property, such as jewelry, art, and furniture
- Cash value of any insurance policies
Examples of liabilities:
-
List your liabilities (what you owe) and add up the outstanding balances. Include items such as:
- Mortgage
- Car loan
- Credit card balance
- Student loans
Subtract your liabilities from your assets to determine your personal net worth.
After calculation your net worth and you have a negative status it
simply means you owe more than you own. There are simply two ways to
increase your net worth: increase your assets or decrease your
liabilities.
