Calculating Your Net Worth
The last element of effectively managing your money involves calculating your net worth and working to help it grow in the future.
Your net worth is a measure of your financial well-being or your wealth. The higher your net worth the better off you are financially. Ideally, if you manage your finances responsibly your net worth should increase over time.
To calculate your net worth, simply subtract the value of your debt from the market value of your significant assets.
- Market value is what something, like your house, is worth today or what you could currently sell it for in the appropriate marketplace.
- Your significant assets include cash, stocks, bonds, mutual funds, real estate, registered retirement savings account, a business, automobiles, fine art and antiques, to name a few. Significant assets do not include clothing, furniture or household goods.
When you subtract the total value of your debt from the total value of your significant assets the resulting number is your net worth.
For example, if your assets total $50,000 and the total value of your debt is $30,000 - your net worth would be $20,000.
Don't be alarmed if you have a negative net worth. It is not always a sign of poor financial health. The important thing to remember is your net worth is dynamic in nature and will change. What your goal should be is to have your net worth move in a positive direction. This can only be achieved by eliminating your debts and increasing your savings. Remember checking your net worth on a regular basis is like looking at the gas gauge in your car; you can't get where you want to go with an empty tank.
