?Almost half of all Americans do not know what their net worth is. They have not bothered calculating it, do not see the benefit of it, and many do not even know how to make the calculations. Understanding how to calculate your net worth, how much you have in assets, and how much money is tied up in liabilities that you owe is critical to ensuring that you are on the right track financially. Calculating your net worth is very easy and something that every family should do about once every three months as an azimuth check to ensure that you are headed in the right direction. There are a lot of online tools such as a savings calculator can help you calculate and track your net worth.
What is net worth? Net worth is what public companies call equity. Just like your home, it is the value of your investments, assets, and possessions after taking into consideration how much you owe other people in the form of loans and liabilities. Net worth is the result of subtracting your liabilities from the total of all your assets. If you own a $200,000 home and have $100,000 in retirement accounts, then you have $300,000 in total assets. In this scenario, if you also have $10,000 in credit card debt, owe $5,000 on your car loan, and have an outstanding mortgage on your home of $150,000, then you have a total liability of $165,000. Based on this example, you would have a net worth of $35,000 ($200,000 – $165,000).
Understanding how to calculate your net worth and continuing to track its value over the long term can help you determine if you are heading in the right direction financially. Because you have to list all of your investments when calculating the total assets portion of the equation, you can begin to see over time if you are saving enough money towards your financial goals. Are you saving enough towards retirement? Do you have enough money saved for your children’s college fund? Calculating your net worth can help you identify these shortfalls and using a savings calculator can help you determine how much extra you may need to save for a particular goal. The same warning signs can be determined for your liabilities as well when calculating your net worth. Is your credit card debt rising? Are you making significant dents incontributions to eliminate your debt or just barely making the minimum payments? Calculating your net worth will identify these trends over time.
How do you know if you are headed in the right direction financially unless you track exactly where you currently stand? Your net worth is the classic accounting method used by businesses and individuals alike to determine their complete financial picture. Everyone should monitor their financial situation by regularly calculating their net worth.
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