Net worth isn’t exclusive to celebrities or business tycoons – everyone has one, be it positive or negative. It’s a crucial number that represents the real value of the assets you own. Monitoring this figure can help clarify your retirement decisions and provide a comprehensive overview of your financial circumstances. Thankfully, determining and monitoring your net worth isn’t daunting – here’s a simple guide, along with some tips on boosting your net worth.
CALCULATING AND KEEPING A TAB ON YOUR NET WORTH
The formula for determining your net worth is straightforward – subtract liabilities from assets. The trick lies in ensuring you account for every asset and liability. Here are some steps to assist you.
ASSESS YOUR ASSETS
Assets constitute belongings that potentially enhance your net worth. Examples include properties, investment portfolios, your savings account balance, and more. Some also count the value of their vehicles, jewelry, and collectibles. Estimating the value of non-monetary assets – such as how much you could sell an item for immediately – can be a tricky position. For properties, websites like Zillow or Trulia provide worthwhile estimates, whilst there are other platforms for estimating vehicle value.
SUMMARIZE YOUR LIABILITIES
Your liabilities are essentially debts – all your pending personal loan repayments, credit card payments, car loans, mortgages, student loans, and more.
DEDUCT LIABILITIES FROM ASSETS
Having figured your assets and liabilities, the next step is to deduct the total liabilities from the total assets. Money management platforms, like Personal Capital, will perform this calculation if you have an account with them.
KEEPING AN EYE ON YOUR NET WORTH
Your net worth isn’t static – it varies as your financial condition evolves. Regularly updating your net worth helps maintain financial health. Some people use platforms like Personal Capital, which update net worth automatically as assets and liabilities fluctuate. Others might prefer a manual approach, logging changes into a spreadsheet each month.
WHY MONITORING YOUR NET WORTH IS CRUCIAL
People often disregard the significance of scrutinizing their net worth, but the advantages are numerous.
NET WORTH REVEALS MORE THAN YOUR EARNINGS
Income is one thing, but net worth provides a broader, more comprehensive financial perspective. The money you retain – rather than solely the money you gain – assists in identifying financial strengths and weaknesses.
RECUPERATION FROM DEBT
Tracking your net worth can be a motivator to clear debts. A holistic view of all your debts helps recognize the importance of regular repayments, improving your assets, and limiting liabilities.
ENCOURAGES INVESTMENT
A consistent increase in your net worth can inspire further investments. Although gains may not necessarily be immediate, long-term investments can potentially contribute to a positive net worth over time.
REFLECTS FINANCIAL STABILITY
Net worth provides a clear indicator of your financial wellness. A larger net worth suggests monetary security. Your list of assets and the diversity of your accounts can reflect efficient money management habits.
IN SUMMARY: TRACKING YOUR NET WORTH IS CRITICAL, BUT IT DOESN’T DEFINE YOUR WORTH
Always remember, net worth doesn’t determine self-worth. Regardless of the financial situation, it’s unhelpful to judge yourself based on your net worth. Nonetheless, tracking it can provide actionable insights for financial improvement. It’s a simple practice that can enhance your financial stability and increment your net worth over time.
