How to Calculate Your Net Worth

Knowing your net worth can be crucial in understanding your financial situation. It can help you to set short-term goals and retirement plans and track your progress over time. Determining your net worth is an important step that can help you create wealth and plan your investment time horizon in many ways.

So what is net worth, anyway? To determine your net worth, it is necessary to subtract your liabilities from your assets, which would be your overall financial value. Assets are things like cash, investments, and property that you own and have value. Liabilities are debt, loans, and credit cards you owe and incur a financial obligation.

How to Calculate Your Net Worth

To calculate your net worth, gather information about your assets and liabilities. Assets can include anything you own, such as cash, liquid and non-liquid assets, investments, property, and other personal items. Let’s analyze these assets in greater detail and accurately calculate their value.

• Liquid Assets: Your liquid assets can be easily converted into cash, such as checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). Determine the current balances in each account and add them up to get your total liquid asset amount.

• Non-Liquid and Investment Assets: Is a 401k a liquid asset? No, it is a non-liquid asset. What is a non liquid asset? Non-liquid assets, such as 401(k)s and other retirement accounts, require more time to convert to cash but still have value. Investment assets include stocks, bonds, mutual funds, retirement funds (such as IRAs and 401(k)s), and other securities. These can range from individual stocks to a diversified portfolio of investments. Consider any gains or losses you have had over time when calculating the value of these investments for your net worth calculation.

• Real Estate Value: Real estate includes your primary residence and any additional properties you own, such as rental or vacation homes. To calculate the value of this component of your net worth, use either the purchase price you paid for them or their fair market value, whichever is higher.

• Other Assets: Other assets may include your motor vehicles such as cars and boats; personal items such as jewelry and furniture; collectibles; precious metals; art; antiques; and any other items you have that have inherent value. Again, use the purchase price you paid for them or their fair market value — whichever is higher — to determine their worth when calculating your net worth.

Adding Up Your Assets

After gathering information about all of your assets (liquid assets plus investments plus real estate plus other assets), it’s time to add up all of their values together to get an overall total for your asset amount. This amount will be used in the equation to determine your net worth later.

Liabilities

Now you need to add up your liabilities. Liabilities include any debts or financial obligations that you have. This could be anything from credit cards to student loans, car loans, or mortgages. Include any outstanding balance you owe and any interest or fees associated with the debt.

Final Calculation

Now that you’ve gathered all the information about your assets and liabilities, you can calculate your net worth. To do so, add the value of all your assets and subtract the total value of all your liabilities. This will give you your net worth. For example, if you have $50,000 in cash and investments, $100,000 in property, and a car loan of $20,000, your net worth would be $130,000 (50,000 + 100,000 – 20,000).

Why is Net Worth Important?

Net worth is a great way to track your financial goals and progress. Revisit your net worth regularly to check your progress. You can also use your net worth to understand your financial health better.

How to Increase Your Net Worth?

You must make strategic financial decisions to maintain and increase your net worth. Establishing practical financial objectives for both the short and long term is important. For instance, saving for retirement, repaying debt, and investing in appreciating assets are all good options. Remember to diversify your investments and create a solid plan for your retirement withdrawal strategies.

Understanding your finances is crucial for calculating your net worth. Knowing your net worth clarifies your financial standing and aids future planning. Calculating net worth helps build wealth and attain financial security.

Get your complimentary financial plan and portfolio analysis today from Talon Wealth Management.