What Are You Worth?
To gauge your financial health, it’s a good idea to keep close track of your net worth. This doesn’t mean what you’re worth as a person. Net worth is the value of your personal finances.
One way to understand it is to imagine yourself as a business. To figure out how much a business is worth, you would add up everything the company owns and subtract from that total everything that the company owes.
- Net Worth = Assets – Liabilities
Assets are things that you own. Even if you still owe money on them, they are assets.
These can include things like your car, your furniture, your house, your entertainment system, your patio furniture and your camping gear. Your list of assets also includes the contents of your bank accounts, cash in your wallet and investments.
In order to accurately determine your total assets, you must establish the appropriate market value for each item on your list. Consider what an item is worth if you were to sell. Be honest with yourself and your estimates. Figuring out your net worth can help you in making responsible financial decisions for you and your family.
Liabilities are those amounts that you owe.
When you are listing your liabilities, you'll want to list not just the sticker price, but the full amount you will pay after the finance charges. For example, your liability is not the cost of the house, but the total amount of the loan to be repaid — including interest. You can determine this by multiplying the payment amount by the number of payments left to pay off the amount.
Ideally, your list of assets will outstrip your list of liabilities, but both need to be considered when working out your net worth. If the news isn't good, take comfort from the fact that your net worth statement is a snapshot in time. Everything —your assets and liabilities — is a constantly moving target.