At some point in time, you must have thought what was your value or to be precise your net worth. You should know your net worth because it will help you with your financial decisions in the future. Moreover, banks or job hirers might want to know your financial standing to check whether you are eligible for the bank loan or the job. Let’s find out what net worth is and how to calculate it.
What Is My Net Worth?
You can calculate your net worth by simply subtracting all your liabilities from your assets. If your liabilities are higher valued than your assets then you have a negative net worth, otherwise, it’s vice versa. Your assets may include your bank accounts, personal belongings like jewelry and car, real estate, retirement funds, etc. On the other hand, liabilities include your debts of any kind, mortgage, loans, and other money that you have to pay back. Let’s look into the details of how you can calculate your net worth.
To calculate your net worth, you need to first have a clear idea of what your assets and liabilities include. Let’s look at what your major assets and liabilities may include
Assets:
An asset is any resource owned or controlled by you that can generate revenue or can be converted into cash. You should consider the following assets while calculating your net worth.
– Home and real estate:
For an accurate net worth calculation, calculate the value of your home which should be closest to the current market value. The same goes for any real estate you own, may it be second homes, undeveloped land, or rental property as they all fall under the same category.
– Cash and Bank accounts:
The total amount of printed cash you have is also considered an asset. Alongside, the balance in your savings and checking accounts are also counted as an asset. Retirement accounts are also part of your assets.
– Investments and digital money:
Investments you have made are also considered an asset whether the investment may be in banks, stocks, or any other place. If you have invested in the digital currency then that will also be counted as an asset, digital asset to be precise.
– Automobiles and other vehicles:
Any vehicles you own that are not leased, the current value of those vehicles adds up to your assets. Likewise, if you own any other vehicles such as RVs or campers their value is also added to the total assets you own. Any of the vehicles you own cannot be leased or else they will not be counted as your assets.
– Collectibles and Jewelry:
One of the most popular items, when looking at ones assets is the jewelry they have. It is the same as investing in fine art. The value of your jewelry depends on the condition of the item and what it is made of. If it is made of a material that is high in demand, then it is a valuable asset. Collectibles include paintings, art pieces, and other valuable items. These are usually considered valuable assets as they are worth a lot.
Liabilities:
Any money or entity you owe to another person or organization is known as a liability. Liability could be of many types which include a debt, or a loan whether it be from a bank or another source. Anything you have to pay back falls under the category of liability. Following are some of the main liabilities you should look into when calculating your net worth:
– Bank debts:
Bank debts are a type of long-term liability. Bank debts may include loans you take from the bank or any of your outstanding debts. These loans may be for buying a house, starting a business, or for whatever reason the loanee (someone who takes a loan) has taken the loan.
– Mortgage debt:
A mortgage is a type of loan used to purchase or maintain a home or other types of real estate which is usually paid in a– Credit Card debts:
A type of unsecured liability is credit card debt which is related to credit card loans. Credit card debts mean the total outstanding balances that the loanee is due which he has to pay.
– Taxes:
Taxes are examples of current liabilities which means that they are also listed in the liability section. Tax liability is the amount a person, business, or other entity has to pay to the local government.
Conclusion:
In short, the way you calculate your net worth is by subtracting the total value of liabilities you have from the total assets you have. Assets may include the cash you own including your bank accounts and digital currency. If you have made any investments or own any automobiles or other vehicles, add them in your assets list. Any home or real estate you own; any jewelry or collectibles you may have are counted as assets as well. On the other hand, liabilities include bank loans, mortgage debts, credit card debts, and tax liabilities.
FAQs:
– Do you include a 401(k) in a net worth calculation?
Since 401(k) is a retirement plan, you include it into your assets during your net worth calculation.
– How often should I calculate my net worth?
Though there is no fixed period during which you should calculate your net worth, many people calculate their net worth yearly to get a comparison of their financial standing between the current year and the last.
– Why should I calculate my net worth?
When you are aware of your financial standing, you will be more careful with your expenditure and make sound decisions.
