How To Calculate Your Net Worth – Celebrities’, corporate magnates’, politicians’, and sports stars’ net worth fascinate us. They knew our own net worth, on the other hand, maybe beneficial to us mere mortals.
Many of us, however, don’t want to know our entire financial image, or our net worth is not on our radar. Calculating your net worth, on the other hand, is never a bad idea. Here are some suggestions about how to go about doing it.
What Is Net Worth?
Your net worth is the sum you’re worth after you’ve paid off all of your debts. As you would expect, knowing your net worth can be humbling if you have a lot of debts and little assets.
And how should assets be defined?
“All that can be sold for cash is an asset,” says Jonathan Bird, a licensed financial planner in Phoenix who runs Farnam Financial. “Examine the worth of your possessions to determine how much money you have in assets. Cash, stocks, bonds, cryptocurrency, your primary residence, and other real estate are examples.”
That would cover identifying your debts, according to Bird, “anything that requires you to make a cash payment Examine the value of student loans, credit card debt, auto loans, mortgage loans, and home equity lines of credit to assess how much debt you have.”
It’s important to figure out your net worth, according to Bird. “Understanding your overall financial wellbeing and ensuring you’re on track to achieve your financial goals requires knowing your net worth,” he says.
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Everyone should know their net worth, says Jeff Busch, a partner at Lift Financial in South Jordan, Utah.
“The calculation of your net worth is a crucial aspect of retirement planning. When it comes to retirement planning and ambitions, I believe most people are too casual, “he declares
According to Busch, he recently met with a man in his late 50s who plans to retire over the next few years.
“I learned after speaking with him about his aspirations that he had no idea what his net worth was or even whether he had a retirement plan,” Busch says. “He said that he had made contributions to a 401(k) plan in the past and that he worked for a corporation that did so.”
The man then went to work for another company, lost track of his accounts, and had no idea how much, if any, money he had set aside for retirement, according to Busch.
“He was afraid to even look at this point because he wasn’t sure he wanted to see the findings,” Busch says.
As a result, don’t be that man.
How to Calculate Net Worth
The formula is straightforward. You add up all of your money, as previously mentioned. After that, you total up all of your debts. The debts are then subtracted from the savings. And that’s it! You know what your net worth is.
Your home equity should be included in your net worth, according to Busch.
“Many people leave this out of the equation and are disappointed when they see the final result,” he says. “When you factor in your home equity, you’ll find that you’re far closer to that elusive million-dollar mark than you thought.”
Ok, maybe. It depends on whether you own a home worth $1 million or less or one worth $100,000. Even then, your home equity is a significant part of your overall net worth.
Busch, on the other hand, advises that if you want to spend most of your retirement in your house, you can calculate two net worth figures: one that tracks your entire net worth and one that tracks only your retirement assets. If you’re saving for retirement and won’t be selling your house, you don’t want to give yourself a false sense of security by including your home equity in your net worth.
What Is Future Net Worth?That is a topic that everyone should ponder. What do you think your net worth will be in the future – or what do you want it to be? What’s more, how are you going to get there?
Getting it is excruciatingly difficult, but it should be simple in principle. We’re all aware of how to increase our net worth. But, much like exercising or eating well, it isn’t always straightforward – and there’s no doubt that some people have advantages over others that make it easier for them to accumulate a larger net worth.
Here are a few suggestions for increasing your net worth:
Spend less and make more: That’s what Andrew Wang, managing partner of Mendham, New Jersey-based Runnymede Capital Management, says. He claims that the only way to increase net worth is to spend less and earn more. And you’re probably saying to yourself, “Gee, why didn’t I think of that?” But, as previously said, if we are to maximize our net worth, we must all do so.
Keep an eye on your spending: “While many financial advisors and coaches recommend budgeting, I think that simply monitoring your spending is a better option,” Wang says. “Most people know how much money they earn, but only a small percentage of them know where their money goes each month.”
He believes that once people start monitoring exactly how they spend their money, they tend to make adjustments and save more.
Ask for a raise: Granted, this may seem like a tall order before the economy recovers and the pandemic subsides, but Wang recommends it. If you haven’t received a raise in a long time and are doing well at work, it’s time to ask.
Pay down debt: You will increase your net worth by paying off debt, whether it’s college debt, credit card debt, or a car loan. “Aside hustle may often produce extra income to help pay down debt,” Wang describes.
Talk to your family about your money goals: Wang has made yet another suggestion. “The most successful families I’ve seen have one thing in common: excellent communication,” he says. “We freely discuss money and set targets.”
Invest: You can invest if you are saving money, according to Bird. “If you have a long enough time horizon, consider investing in a low-fee S& P 500 index (fund),” he says.
A tax-advantaged portfolio, such as a 401(k) or an IRA, is, of course, a simple and wise way to save.
The Bottom Line
What matters is that you keep track of your net worth. You’ll still have an understanding of your financial situation if you do it at least once a year. Even if you come to a conclusion that “not worth” defines your finances better than “net worth,” acknowledging that you’re in poor shape is preferable to deluding yourself into believing you’re in decent or nice shape.
Keep in mind Benjamin Franklin’s quote, which implies that money isn’t everything: “Your net worth to the world is normally measured by what remains after your bad habits have been subtracted from your good habits.”