First, you need to know that your net worth is the value of everything you have to your name, minus anything that you owe, so it’s your assets subtracted by your debt. When it comes to assets, it’s not just how much cash you have in the bank, but anything valuable that you may have, including your home, cars and even jewelry.
There is a potential for your debt list to be long, as cars, mortgages and student loans are the largest debts that most people have. To get started with calculating your net worth, you are going to want a calculator and some paper (or get a spreadsheet started on your computer). When you’re set, make sure to line up all of your assets and add them up. Some people won’t count anything that has a value of under a couple of thousand dollars, but you can include it if you wish.
From there, you want to make a list of your debts, and this includes the total amount that you owe, not what your monthly payments are. After all, you want to get an idea of where your complete finances are, not just in a few week span. Once you have everything added up, simply subtract the debts from the assets and you get your general net worth.
Now, there’s a good chance that your net worth is going to be negative, and it’s no need to panic since it’s completely normal for someone fresh out of college trying to pay off student loans and a car while living in an apartment. Making a dent into your debts will increase your overall net worth, and you can eventually get it into the positive side. Remember, anything positive when it comes to net worth is a big win.
Some people like to calculate their net worth once a year, but you can do it once per month if you’d like. If you do it monthly, it gives you a better feel of the direction in which you are headed, and it can be motivating to see your net worth getting closer and closer to the positive side of $0. Many people aren’t likely to see positive net worth until they are in their 30’s, so it takes time.
For those that want to get more detailed when calculating their net worth, remember to add other things that some might miss out on. Investment securities, illiquid and liquid assets, stocks, bonds and more should all be added up. These investments will not only avoid a negative impact on your current net worth, but it will also help in the future.
You might have to do a little research to see how much some of your assets (such as collectibles and cars) are worth, and your home will likely see the biggest changes. You can also include your life insurance policy’s cash surrender value, but make sure to not include any future inheritance you might have, just the inheritance you have already received.
One of the biggest tips to increasing your future net worth is to limit the spending on the physical cash that you currently have. The more you have in savings, bonds or investments will lead to a higher net worth. Some people get caught up in spending any extra cash they have, but they are only hurting themselves in the long run.
Once you see what your net worth is, it can come as a bit of a surprise, but it can be vital into helping you realize where your money is going and where it’s coming from. Calculating your net worth is a simple process that a lot of people overlook, but you can probably see now that it’s an important step to take. Those with the highest net worths in the world have some of the most diverse financial portfolios, and listening to their advice is a great way to get started.