Understanding Your Net Worth
Many people do not know their Net Worth, but determining it is just as important as knowing how much you owe. This article will help you understand the value of your assets (things you own) and your liabilities (debts you owe). Your Net Worth is calculated as the difference between the total value of your assets minus the total amount of your liabilities. Generally, the higher your Net Worth, the more resources and options you have to deal with financial challenges.
How to determine your net worth
Create a balance sheet listing all your assets and liabilities. This should include investments, savings, etc. as a positive balance, and debts as a negative balance. Your liabilities should cover both unsecured debt like credit cards, medical debt, etc. and secured debt such as mortgages, car payments, etc.
Example:
Assets
- 401 K: $25,000
- Savings: $1,400
- Stock: $12,000
- Total: $38,400
Liabilities
- Credit Card: -$15,000
- Medical Debt: -$30,000
- Mortgage: -$130,000
- Car Note: -$5,000
- Total: -$180,000
Assets + Liabilities = Net Worth
$38,000 + -$180,000 = -$142,000
If you have a negative Net Worth, you owe more in debts than the total value of things you own. Identify debts and other liabilities to pay off or get rid of to improve your situation. If you have a positive Net Worth, then there may be assets to use or sell to resolve your financial situation.