Understanding how to calculate your net worth is one important factor you shouldn’t skip its knowledge. The best way, tested and trusted of knowing your value or worth is your ability to clearly calculate and arrive at your net worth.

The question now is what is Net Worth?

Net worth is the total value of all the financial and non-financial assets owned by an individual, institutional unit or sector after the deduction of the value of all its outstanding liabilities.

In a clearer term, your net worth is the total amount of assets you have in possession after all loans cleared and liabilities excluded.

For the sake of those who don’t know what assets or liabilities are,

An asset is anything that is owned and has monetary value while liabilities are obligations that deplete resources. Assets can be liquid when they are, or can be easily turned into cash (like a checking account). They are non-liquid when it could take time to turn into cash (like a home). Liabilities are obligations that have to be paid off (like a car loan etc.)

Having known this, then the next thing is to know how to calculate your net worth,

How to Calculate Net Worth

Calculating your net worth really isn’t all that hard. It just takes a bit of time, some scratch paper, and a calculator.

Step 1: Make a list of all of your assets and their estimated value.

This includes retirement savings, your current checking and savings account balances, any bonds you might have, the total value of any stock holdings you might have, your home, and your automobiles. I usually don’t include any physical assets less valuable than my car, but you can do this if you wish.

While some of these assets will have very specific and obvious values (such as your bank statement), others will require you to make an estimate. Sites like Zillow or Redfin offer estimated home values, and while they shouldn’t be taken too literally, they can give you a ballpark idea of what your home is worth.

I usually make a list that says ASSETS in big letters at the top. Underneath that, on the left, I list what the asset is and on the far right, I list the value of that asset so that the decimal points of all of the assets line up. This makes the calculation of your total value much easier.

Once you’ve listed every asset you can think of, write TOTAL in big letters over on the left, then add up the numbers. Once you have this total, you’ve got the total value of your assets.

Step 2: Make a list of all of your debts(liabilities).

Now, list all of your credit card balances, personal loans, student loans, auto loans, home loans, and so forth. Much like with the assets list, I recommend a big header that says DEBTS, with each debt listed below that on the left side and the amount of the debt over on the right, with the decimals lined up for easy figuring. (Of course, you can also use a spreadsheet.)

Once you’ve listed all of your debts, write TOTAL in big letters on the left, then add up all of the debt numbers. This is the total amount of all of your debts.

Step 3: Subtract.

Finally, just subtract your total debt from your total assets. The resulting number is your net worth.

A Typical Example Here Using Adeola’s Net Worth


To illustrate the process, let’s look at this example

Example :

Adeola is 25years Of age. She owns a home worth #250,000, and still owes #150,000 on the mortgage. Her six-year-old car is now only worth about #7,000, but it’s all paid off. She has #1,000 in credit card balances, #25,000 in her 401(k), about #5,000 in her savings account, and #20,000 remaining on her student loans.

ASSETS

Home: #250,000

Car: #7,000

401(k): #25,000

Savings: #5,000

Total assets: #287,000

DEBTS

Credit cards: #1,000

Student loans: #20,000

Mortgage: #150,000

Total debts: #171,000

GINA’S NET WORTH: #287,000 – #171,000 = #116,000

So her Net worth is #116,000

Very simple you see.

It is very important that you take the calculations of your net worth very seriously, by doing so you get alert of your worth and how much of liabilities you are acquiring.

You earning over half a million monthly isn’t what counts but what you spend on and acquire. If they are assets or liabilities.

Source : https://dailyguide.com.ng/what-is-net-worth-and-how-can-you-calculate-your-net-worth/

good lesson learnt.

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