Your net worth gives you a snapshot of your financial health. This is simply calculated by subtracting all your assets from your debts. Your net worth will help you identify where you are on your financial journey and where you want it to take you. Here's a quick guide on how to calculate your net worth.

What's the net worth?

The net worth of an individual is calculated by subtracting all their liabilities from all their assets. These intangible assets, such as IP (intellectual property), can be added to a person's net worth. This means that the total assets are subtracted from the intangible assets. This is called tangible net worth.

Business entities have a higher tangible net worth than individuals. It is necessary to determine the value of a company if it is going through liquidation or sale. This is done by calculating tangible net worth. It would also include intangible assets such as copyrights. We'll be focusing on personal finances, so we'll focus on the simpler net worth calculation.

Is net worth important?

Because it can be used to indicate financial stability, net worth is important. It is distinct from other financial indicators like earnings. If you have high income but a lot of debt, your net worth may not be very high. This can be a first step towards improving your money management, such as by creating a spending plan.

But, focusing on net worth in isolation won't be a good idea. You shouldn't be focusing on your net worth at the moment. You should track your net worth over time if you want to make this information useful. Your net worth should increase with your age. This is true for most people. Positively growing net worth can help achieve your life goals such as FIRE (Financial Independence and Retire Early).

This can help you to see your net worth in comparison to others your age. There are many steps you can take to increase your net worth if you're unhappy with it. You can start by decreasing your liabilities and paying off your debts. Then, you can grow your money through divers investments (401(k), Roth IRAs stocks, bonds, mutual fund, etc. You can also earn more from multiple income streams.

How do you calculate your net worth

You must first determine where you are at the moment before you can improve your net worth. What is your current baseline? It's easy to calculate your net worth using a financial calculator:

Liabilities = Assets

What is considered an asset and what is considered a liability? We have broken it down below to make it easier.

Calculate your assets

Start by listing all your assets. Next, determine the dollar-value of each asset to calculate your net worth. You will need a simple spreadsheet with two columns to provide all the necessary information. Assets are cash and all goods you can sell or liquidate to make cash. These include:

• Bank accounts (e.g. checking accounts and savings account)
• Retirement savings include 401(k), Roth IRA retirement accounts and other options
• Investments such as index funds, exchange traded funds (ETFs), stocks and bonds, certificates or deposit (CDs), and others.
• Real estate includes your primary residence (what its value is) and all other properties such as vacation homes and rental properties.
• Life insurance accounts with cash value
• Other personal property such as cars, jewelry, collectibles and the like

Calculate your liabilities

Next, you will need to create a list of all your liabilities and calculate the dollar-value for each one. A simple spreadsheet with two columns should provide all the information you require. Any money that you owe to any bank, person, lender or other entity is called a liability. These include:

• Consumer debts like credit card debts
• Student loans
• Car loans
• Payday loans
• Home equity loans
• Personal
• Mortgages for property that you consider assets

Calculate assets and liabilities

After you have completed your two lists, add up the dollar value for each. Next, calculate the net worth using the net worth equation.

Liabilities = Assets

Let's take an example to show you how a final networth calculation might look. Let's suppose you have calculated the value of your assets. They look like this.

Now you need to calculate all your liabilities. These might look like this:

Now you can calculate your net worth. Simply subtract the following to calculate your net worth:

$400,000 - $185,000 = $215,000

Remember that your net worth can fluctuate over time so it is worth keeping track of the numbers at least once a year. This number can change depending on how your assets and liabilities evolve, and how the market changes. Low interest rates and slowing asset growth could impact your savings account, for example.

Improve your financial future now

It can be daunting to calculate your net worth at first. What if your net worth isn't what you want? This type of thinking should not discourage you. You can always increase your net worth by investing, paying off debts and increasing your earnings. It is dangerous to not know your net worth. This is an indicator of financial health beyond income.

Anxiety and fear around money-related topics such as net worth can prevent you from reaching your full potential in earnings. Talking about financial topics is a great way to make money work for your. Your first step to improving your financial situation is knowledge.

Financial savvy does not mean that you need to be a penny-pincher. The "11 Ways to Make Money" approach to wealth management provides simple financial information that you can use in your daily life. This philosophy does not require you to live a strict lifestyle and avoid all pleasures. It's more about understanding your money dials and how you spend your money. This will allow you to focus your spending on the things that you love.

How to Calculate Your Net Worth Easily from 11 Ways to Make Money