Net worth definition
Net Worth can be defined as a snapshot of your financial health. You should track it over times so that you can fortify your financial health. You have heard any well-known person is “worth $15 Million” but you don’t understand its exact meaning. And if a question raises in your mind that what is your own net worth then you will find the answer to this question in this piece of writing very clearly.
What is Net worth?
Net Worth can be defined as the value of assets minus liabilities. Your Net Worth is not only about your income instead it includes your investments, savings, and debts.
Net Worth = Assets – Liabilities
What does net worth mean? In the financial language, the word “Net” means “after subtracting debts and expenses”. One can define worth as the amount that can be achieved in a specified time. The increase in Net Worth indicates good financial health. On the other hand, when liabilities increase more than assets, net worth decreases and indicates a financial crisis. So we can say that net worth can be found by subtracting liabilities from assets. It means net worth can be a measure of your well-being and financial health.
Importance of net worth
It is important to know your net worth because it provides a snapshot of your financial health. When you calculate your net worth, you can see the end result of everything you have spent up and everything you have earned till right now. It provides a wake-up call if you are off track or you are doing well. It offers a meaningful view of your finances. It can help you to evaluate your present financial health and help you figure out what to do in order to reach your financial goals.
How one can calculate his/her net worth?
Many people wonder what they are valued in economic terms. It is a very simple exercise. It can be calculated by the subtraction of your debts from the assets. If your assets are more than your liabilities then your net worth is positive. But if your debts exceed from your assets than the net worth is not positive rather negative. Then our goal should be to work hard to make our net worth positive. It is an indicator that you have to pay off your debts for your strong financial health.
How one can determine his/her net worth?
It is fairly straightforward to regulate one’s net worth. You should create a detailed list of all of the assets you own and a list of your liabilities. You further need to add up both the lists and then subtract the liabilities out of the assets. Below we are going to tell you some steps for calculating your net worth in a traditional way such as, by hand. However, you can use some tools available on the internet as well. When you synchronize your accounts, it calculates the net worth automatically. By calculating your present net worth, you can even estimate your future net worth as well.
What is an Asset?
The assets are the things you own having a monetary value. Assets include cash like in your checking, retirement accounts, savings, and things like property, cars, and investments that you can sell for cash.
Assets = cash + items that could sell for cash
A few examples of Net Assets:
- The amount you have in your investment accounts
- Your car’s market value
- Your home’s market value
- The amount in your savings accounts.
- Items of economic value you own, like furniture, collectibles, and jewelry.
Assets vs liabilities
What are Liabilities?
Liabilities are debts that are obligatory to pay. Liabilities are the entire debt you owe. Your liabilities can not be determined by the monthly payments you owed, rather by the owed debts. Here are some examples of liabilities are:
- Car loans
- Student loans
- Credit cards
- Medical bills
- Liens and judgments against you
- Back taxes
If you find the net worth negative then it is all because of your car loans, mortgage debt, and credit card debt. Your student loans have a great influence on your net worth as well.
What is liquid net worth?
The part of a person’s net worth that can be easily turned into cash is his/her liquid net worth. It includes investments like stocks and mutual funds. However the assets, that are difficult to easily convert like cars or real estate.
Different ways to calculate the Net worth
You can find some ways to calculate the net worth of your own.
1 How to calculate Net worth in Traditional way?
To calculate your net worth, you need paper, pencil, and calculator. Then divide the paper into two halves. Write the word “Assets” on the left side while the word “Liabilities” on the right. Now list all of the assets and its value net in the assets column and all the liabilities and its value in the liabilities column. Then add all the values of both sides then subtract liabilities from assets to get your net worth. Below is an example of a fake person’s net worth. Check the example of net worth calculator:
Have a look at some celebrity’s net worth. Offset net worth is $ 16 million. Migos net worth, as a group is approximately $ 50 million. The estimated net worth of Cardi b is $ 8 million. Cardi b ethnicity is mixed. Metro boomin net worth is $ 6 million. Chance the rapper net worth is $ 33 million. Quavo net worth is $ 16 million. The Edge net worth is $ 340 million. Google net worth is approximately $ 52.4 billion.
2 Calculating Net worth with an Excel sheet
You can calculate your net worth on an excel sheet. You need to open the Excel document and type in your assets and liabilities exactly like in the above-mentioned example. Then use the function bar to add the values for you.
3 Calculating net worth with tools
It is easiest and fastest to calculate your net worth with the tools available on the internet. Quicken is the tool used for fastest and accurate calculation. It allows you to gauge your financial health at a glance. It is a recommended financial software program that you can purchase and download on your computer. You can enter your financial information manually into this program. Then quicken will sync quickly your information and it will show your net worth.
What are the Tips to increase Net worth?
Here are some tips to increase net worth. First, save more than you spend. If you can do this one thing, your net worth will increase.
- Save more money
- Decrease your debt
- Earn more money
In this piece of writing, you learned about Net worth, the meaning of net worth, and how to calculate it. Net worth can be defined as the total value of your assets, minus the total value of your liabilities.
Your net worth is the indicator of your financial health.
If you want to increase your net worth, all you need to focus on having more assets and fewer liabilities. We have mentioned different ways to calculate your net worth. We have also shared some tips to increase your net worth. To conclude we can say that to calculate and determine your net worth is the key to improve your financial health. So keep checking your net worth in a specific time period and increase your worth finances.