“What is my net worth?”
It’s a question many people ask, but not everyone knows how to answer it.
Net worth is something we all have.
Put simply, it is a number which represents a snapshot of your financial standing at a given point in time. This number can be positive or negative and multiple factors can cause it to change. According to a recent TIME article, to reach financial independence one of the most valuable steps that can be taken is to monitor which direction your finances are headed. This is accomplished largely by knowing and watching changes in your net worth.
The way net worth is determined is virtually universal. Calculating it can be simple or slightly more complex depending on your situation. For example, if you have income producing assets and/or assets which are depreciating this can require a somewhat more involved process. Regardless, the same simple equation is used. Net worth is calculated by subtracting liabilities from assets. The remaining sum is considered your net worth. Basically, it is subtracting what you have from what you owe to get one number.
Assets – Liabilities = Net Worth
Looks rather simple, yes? Sure, but it can also be easy to miscalculate if you aren’t careful. For your net worth to be accurate, and therefore beneficial, it must take into account every bit of your money coming in and going out. Missing one item, assigning the wrong value to something, or categorizing incorrectly can render the “net worth” number you calculate to be useless.
The leg work to gather all of this information can feel a bit overwhelming, but it is worth it and there is help. Personal net worth calculators, such as our CalcuTrack™ tool, can make the job simpler and help reduce the chance of oversights.
Knowing Your Net Worth
So, why is calculating and tracking net worth a good idea?
Your net worth is simply a number, but it speaks volumes as a representation of your current situation. It can be difficult to get where you want to be if you don’t know where you are starting from. Calculating your net worth will tell you just that!
Because you take into account every piece of your financial puzzle when calculating your net worth, a global view of where you stand monetarily is obtained. Essentially, you can know precisely where you stand. After all, having a clear picture of your current financial state is an essential first step in securing, managing and growing your wealth.
Tracking, Maintaining, and Growing
Net worth can be a very fluid number. Changes in income, new purchases, paying off a mortgage, and increased cost of living are just a few of the many things which can change your net worth. This sliding behavior, in either direction, whether small or larger, is very important to track. The more firmly you know your exact net worth the more information you’ll have when making important financial decisions. Knowing your number will take the guess work out of how a financial step will impact your goals.
Net Worth Rundown
As you can see, knowing your net worth can be a great way of understanding where you are sitting financially. It can be used as a guide to help you move towards your goals or to simply maintain what you have already accumulated. Calculating your net worth can be done simply, but must be done accurately to be of use.
Need a tool that helps you dive deeper into your personal net worth? Sign up for a free CalcuTrack account, enter your data, and see if it’s right for you.