There are lots of ways to track your finances to see if you are on the right track. Creating a budget, tracking expenses and saving money are all ways to show how your finances are doing, month to month. But your net worth can also be an indicator of how well your finances are (or not).
Put simply, your net worth is your assets (things you own) minus your liabilities (things that cost you money). So things like your home counts as an asset, but your mortgage – if you have one – counts as a liability. Because your mortgage is a debt, it’s something you own so that would be taken away against the price of your house. Things like car loans, credit card debt and other financed options are all liabilities. Things like house price, savings, investments or other money making assets can count towards the positive side of your net worth calculation.
How To Calculate Your Net Worth.
So, firstly, you need to work out your assets. These are the things you could sell, in theory, to gain money back. These include
- house value
- car(s) value
- savings account total
- investments total
- current account total
- anything of significant value in your home (over £500 worth is a good starting point).
If you add all of these numbers together, this is the total of your assets.
Next, you need to work out your liabilities. These are things that cost you money, and could include:
- mortgage total
- car loan total
- credit card balances
- other loans
Add these together. This is the total of your liabilities.
Then, to find out your net work you take the total of your assets and then minus the total of your liabilities. Depending on circumstances, this might be a negative number. Don’t panic! This just means your finances need some work and if will give you a good starting point 🙂 I’d suggest doing this at the end of each year to see the overall progress of your finances. I do ours on the last day of the year, every year. It’s just a complete picture of your financial health. If your number is negative to begin with, then you can work on changing that.
So, calculating your net work is fairly simple. It’s improving it which is the difficult part! If you find that your number isn’t as good as you would have hoped – perhaps it’s negative or very small – then work on reducing the debt and increasing your savings and/or investments. If you find you have significant savings and not sure where to go next, then you might benefit from looking into finding a financial advisor. This might take time, but it will show in the end.
Do you calculate your net worth? Did you know what it was? Let me know in the comments below!
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