Y our net worth is the difference between the worth of what you have and what you owe. From what you own would include cars, real estate, personal properties, ect and what you owe would be things such as outstanding loans, mortgage, ect. To know how to calculate your net worth, you will have to subtract your debts from your assets.
Furthermore, your net worth does not depend on income and paycheck. It has more to do with your investments and debts. If what you own is greater than what you owe, you have a positive net worth and if what you owe is greater than what you own then you have a negative net worth. Before you learn how to calculate your net worth, it’s important to understand what all this means, so let us explain.
Your net worth shows what your financial situation is at the time. A positive net worth is obviously good news as it means your assets outweigh your liabilities and you’re in a comfortable position. A negative net worth means that you owe more than the worth of your assets. Having a negative net worth doesn't always mean you've made poor decisions, it just means you own less than what you owe. This is fine as long as you are aware of it and are working on increasing your assets and decreasing your debts to increase your net worth.
Calculating net worth doesn't only apply to your personal finances but can also be applied to companies and even countries. We only need to know of business and personal net worth, so let's get into it.
This describes the financial situation of your business. This is also known as shareholders equity. This will show how much money your business has after all debts have been paid off. Before giving away a loan, lenders will always like to check your businesses net worth to see if you can be trusted to be able to pay your loans off. This is why you should work towards keeping a positive net worth for your company so it can be easier to move forward and earn the trust of lenders and clients. If your net value increases over time, it's a good sign that your company is flourishing, so it's a good way to track your progress.
Calculating your personal net worth is beneficial as you can keep track of how much you’ve saved and how you can reach your goals. As mentioned, this is just debt subtracted from assets. Your personal net worth will change over time as you pay off debt or acquire some. This shouldn't concern you too much as it's natural for your net worth to fluctuate as long as it doesn't go too far into negative numbers and you are aware of your situation.
I've already explained how to do it, which is just to subtract your debts and outstanding payments from your savings, investments and things you own and you’ll have your net worth. Calculating your net worth is helpful as it gives you an overview of your financial situation and shows you what you need to do to improve your situation and reach your goals.
You may be confused as to what kind of assets are being mentioned. Here's a list of what you can start with:
As I mentioned, your income doesn’t actually factor in your net worth as it's more about how much you have at the moment and not how much you earn.
Your liabilities, however, may include:
After adding all assets and liabilities separately, you will subtract them from one another to get your final net worth at this point of time. To get a more accurate number, there are applications you can use and services online you can utilize to not only calculate your net worth but also show how to increase it.
It all boils down to one thing: knowing how to calculate your net worth is helpful as it makes you aware of your financial situation. For businesses or personal growth, knowing your net worth will help you figure out what steps to take to reach your goals and thrive.
