What is Your Net Worth? – How To Calculate It
As you learn to manage the various amounts of money which represent present and future financial security to you, you should, as a good money manager and personal finance master, you will know what your financial position is. It is not enough to say: yes, I’m saving money; yes, I’m covered by insurance. Your financial position is a very specific statement; it is known in financial terms as your net worth.
At the end of each year, you should figure out your own net worth. Then you can measure the changes that have taken place and you will have a realistic picture of whether you are moving toward or away from financial security. You can figure your net worth in exactly the same way any business firm does – by drawing up a balance sheet. What goes into a balance sheet? A list of assets and liabilities – or a list of what you have and what you owe.
The Liabilities
For a do-it-yourself balance sheet, start with your current liabilities. That means your short-term debts – what you owe on things you are buying on installment credit, money owed on credit cards, on cash you have borrowed, etc. Then add to that your fixed liabilities. This is the long-term debt like the mortgage on your home. Add those together – current and fixed – and you will have your total liabilities.
The Assets
Now for the other side of the balance sheet – your assets. Your current assets will include the cash you have on hand and in the bank, plus stock, bonds, mutual funds, the value of your insurance policies and any other securities or notes which can be quickly converted into cash. Your fixed assets will represent the things you own or are in the process of owning – your home, automobile, furniture, appliances and other major items. Estimate and put down the actual present value of these things, even though you are still paying for them. Again, through simple addition of current and fixed, you can arrive at your total assets.
Doing The Net Worth Math
Subtract your total liabilities (what you owe) from your total assets (what you own) and you will have your net worth. If your liabilities add up to more than your assets, your net worth is minus – you had better revise your money management drastically. If your net worth stays the same from year to year you are courting trouble – spending money as fast as you make it. If your net worth shows a nice, steady build-up from year to year, you have mastered the art of money management. But remember it can always be improved!
Related Articles
- Where the Money Comes From and Where it Goes - So much for the general principles which should guide your day-to-day money management. Now let’s get down to cases. Exactly what do you do when you manage money? You do just this: you keep track of what comes in and what goes out, and you make sure of three things about the outgo: That it isn’t
- Credit Card Terms – The Game of Selling Credit - A good salesperson is very persuasive, they present favorable points one after another to influence a purchase. This is true in relation to credit, credit cards and consumer purchases on credit. The credit terms and payment terms are presented attractively. To them it is a credit game they love to win. In fact, some consumer
- Debt Management Plan – A Strategy for Spending - Many of us have no debt management plan so we have no idea how much we spend or exactly what we spend the money on. Our strategy is to spend as if we can afford anything. It’s much easier when using a credit card than with cash. The spending wisdom if you can call believes
Comments