Everyone wants to be financially stable, especially in times of recession and financial crisis. If you want to know whether you’re in the clear or if you’re making a dangerous turn toward the red, you have to know some numbers and statistics about your personal economic portfolio. Here’s how you can calculate your net worth.
What is Net Worth?
Net worth is a tool used by many individuals to determine their solvency and their relative worth. Net worth is just one of the many numbers and statistical tools you can use to measure your financial capabilities. Net worth is particularly useful for people who want to determine how much their financial portfolios stack up against those of other people.
Here are two key factors you have to know when calculating net worth:
- Assets. Assets are resources, properties, and other utilities and goods that you own and are valuable to you. Some assets include land, appliances, gadgets, stocks, and the cash you have saved up at the bank.
- Liabilities. Liabilities include debts, mortgages, bills, and other things that you have to pay for to gain assets, or to pay for assets you have acquired.
At its most basic, net worth is the difference you get when you subtract the sum of your liabilities with the sum of your assets. While there are many things that need to be considered when making an actual statement for net worth, you can use the resulting difference as an overview of your financial status.
To calculate net worth, follow these steps:
- List all of your assets. Do not list the price by which you acquired them; instead, use the current market value. That way, you have the basic overview you need and you don’t have to do the math to adjust for inflation.
- Compute for the sum of your assets.
- List all of your liabilities. Like your assets, use values from the current market.
- Compute for the sum of your liabilities.
- Subtract the sum of the liabilities from the sum of the assets. The resulting value is your net worth.
Determining your net worth is a very important financial skill. With these steps, you can have a good overview of your financial strengths, and take the necessary steps to keep your portfolio stable. If you find this piece of article helpful, you’ll surely learn more from reading how to spend money wisely.