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Just like we keep having our health checkups every now and then to see if we are doing fine health wise, the same way one should have financial checkup every now and then to know where we stand, and whether we should save more.
There are different ways to get this financial checkup done, one of which is calculating your net worth.
In simpler words, it shows you your financial graph of all the past years. Where you have come from and where you are going if things continue as they have (which could be good or bad).
Putting all the things that you own into one side and putting all the other things you owe on the other side, and then, deducting both the sides is what your net worth basically is.
If what you owe is more than what you own, then your net worth is in negative and if you own more than you owe, your net worth is in positive.
Your net worth is basically deducting all your liabilities from the assets you own. Examples of assets are your car, house, property, and anything that you own, including that which gives you money, whereas liabilities are anything that takes away money from your bank account, for example, loan, credit card balances etc.
Calculation of Net Worth
Calculating net worth can be very simple if we get all the data and the information correctly and precisely.
The very first step to calculate your net worth is to always maintain a folder or file which can tell you all the money that has come in or the money that has gone out of your bank account.
Keeping a folder like this makes the task quite simple and hassle-free. If you use a budgeting software, this step is very easy.
Second step is to calculate the assets you own. Start writing down all the largest assets you own, all the properties that belong to you, and all the current business you’re running.
While doing that, consider your liquid assets as well and also include your prized possessions and everything that has value.
Once you’re done with listing of all these items, just add up their value and that’s how you can get the value of your assets.
Now, how far you go in calculating assets is completely up to you. You could count EVERY item in your possession that could be sold, including the device you are using to read this article, or you could choose to look at the big ticket items, it’s up to you.
The third step is to calculate your liabilities, that is, to calculate what all you owe.
Again, start with the major liabilities you owe, all the loans and all the credit card balance, anything and everything that has been taking away a chunk of your money- even bits and parts of your money.
Once you’re done penning everything down, add them up and that’s how you get the value of your liabilities.
Keep in mind that your liabilites aren’t necessarily expenses. The anticipated cost of groceries, for example, is not a liability but, your car loan or mortgage is.
The last and the major step is to deduct your liabilities from your assets, it might come off as positive or it might come off as negative but what really matters is that calculating the net worth for the very first time is giving you that point on your graph from which you can take it further up or further down depending upon your circumstances and situations.
Pro Tip – While you’re doing this, do it with utmost seriousness and take the numbers very seriously. Once you’re done with the calculations, just use a budgeting app that can track down your net worth for you.
With a little bit of timely record-keeping and regular updating of your assets and liabilities, you will be able to calculate your net worth.