What is net worth and how to do net worth calculation
Net worth is a measure of fundamental monetary value of a business or an individual.It can be arrived at by subtracting the total amount of the entire liabilities from the total value of all assets.However, it can be to some extent misleading since the true market value of certain assets, including houses or the loan portfolios which the banks may own, can become hard to ballpark figure.
A personal net worth can be a useful tool to gauge one’s fiscal growth year after year and hence one’s net worth is in effect a grand total of all assets minus liabilities which may include money owed to others like money borrowed from various sources. It’s always good to calculate net worth to track the progress year after year, and hope for its improvement.
How to Calculate Net Worth
May people worries about on, how to calculate one’s net worth. Calculating the net worth can be hassle free. The only requirement is certain basic financial data of the things owned and the debt one owes. In simple words, the formula for how to calculate the net worth is:
Net worth = (Sum of all the assets and current balance) – (All the liabilities/debts)
Below is some description about calculation of net worth:
Step 1. Sum Up Bank Accounts Balances:
Add up the credit balance in the bank accounts, including checking, savings and money markets.
Step 2. Sum up all Investment Portfolios:
Except retirement plans, list and sum up all investments’ values held solely and in joint names
Step 3. Sum up Values of Stocks and Bonds:
If invested in stocks/bonds in any public company, jot down their estimated values.
Step 4.Sum up Values of Personal Effects:
Without a prescribed assessment, it may be quite difficult to assess the value of personal effects like jewelry, antiques and cars/boats. Internet search helps in obtaining guidelines to assess the value of each category.
Step 5. Sum up Values of Life Insurance:
Add up the total face value of all life insurance policies on self and your spouse name.
Step 6.Sum up Values of Retirement Accounts:
List down and add up the total values of all the retirement benefits obtained like PF, gratuity and pension.
Plus, all others assets like Sole Proprietary Business Interests including Partnership and LLC Interests, monies due from outsiders like anyone who has borrowed against mortgage, promissory note, etc.
Minus, all the liabilities and debts you owe:
After summing up all amount(s) mentioned above, subtract your all liabilities like, you credit card payments, loan amounts which you need to pay, borrowed amount if you take from anyone. In one line, it’s the amount you need to pay in any form.
Everyone wants to improve one’s finances and develop prosperity over time. It should be remembered that the net worth statement is a blueprint of one’s finances at any particular moment. Most people will have a basic idea of their earnings but most of the people may not know their worth.