Net worth can be a useful tool to measure individual financial progress. It can be determined by subtracting totalliabilities from total assets at a specific time. If assets is more than liabilities, individual will have a positive net worth. If otherwise, it will be negative wet worth.
The goal is to work towards a positive net worth. This indicates debt-free status or capability to pay all debt.
It doesn’t offer information about cash flow, or monthly income and expenses. However, it does provide insight regarding how well you’re accomplishing your long-term financial goals.
Calculate Net Worth
To calculate net worth, the first thing to do is to list up all assets and liabilities.
Assets
Assets is defined as everything that has monetary value. Assets can be divided into 2 categories, which are liquid and non-liquid assets Examples of liquid are cash at hand or cash in saving account while non-liquid assets is property. For non-liquid assets, you have to determine the current market value for each asset item.
A few general examples of assets are:
- Money in Savings and Current accounts
- Money in investment & retirement accounts
- Market value of properties.
- Market value of vehicles.
- Notable items such as artwork, furniture, fine jewelry, or collectibles.
Liabilities
Liabilities is an obligation that legally binds an individual or company to settle a debt. It means that all current outstanding debts.
A few general examples of liabilities are:
- Housing loans
- Hire Purchase
- Personal loans
- Credit Card Debt
Calculate Net Worth
To calculate net worth is fairly straightforward. List and add up all assets and liabilities. Then, subtract liabilities from assets.
Do you know what your net worth is?
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