How to Calculate Your Net Worth

In order to determine your current financial position it is good to prepare a Net Worth estimation at least once a year. As with every new thing, the first preparation of a Net Worth will take you most time and efforts, but once you get started it will get easier and easier. Nevertheless, once you have done it and having all the necessary documents and records you will encounter no difficulties in the future.

For the calculation of your Net Worth all you need are the liabilities you have and the corresponding assets you have accumulated. This is required in order to determine what you possess (assets) and what you have to pay back (liabilities).

In order to calculate your Net Worth, you have to go through the following steps:

1. Collecting and Organizing Your Documents

   In order to make an accurate calculation of you Net Worth, you should try to gather all financial documents you have collected. Such documents include bank statements, credit card bills, mortgage, loan and investment papers, insurance policies, tax receipts and etc. After you have collected the necessary documents you should organize them and start listing your assets and liabilities in accordance with them.

2. Organizing Your Assets

   The next step in determining your Net Worth requires the thorough listing of the assets you possess with their corresponding values. The latter represent:

   • Cash + loans received
   • Properties: houses and household goods and furnishings, antiques and collections, jewelry, cars
   • Investments: savings accounts, stocks, bonds, mutual funds, IRAs, 401k and other pension plans, money markets, life insurances

   Have in mind that the list above doesn't represent a full listing of assets, so feel free to add whatever other items you consider an asset.

3. Organizing Your Liabilities

   the next step in determining your Net Worth requires the comprehensive listing of the liabilities you have with the corresponding values. This is required in order to summarize what you owe and are required to pay back. Some of the liabilities you may have include medical bills, back taxes and credit card debts. Child support and alimonies are also considered liabilities. Mortgages, loans and other household debts also fall in the liability category. List all the items you owe repayment in order to make your liabilities full.

4. Net Worth Calculation

   This is the final step of your Net Worth calculation. The formula is as follows:

   Net Worth = Assets - Liabilities

Before proceeding to the above calculations, you have to first add the values of all assets together as well as the values of all liabilities. Only after executing these estimations you should subtract the both totals.

The final result of your calculations can be either a positive or a negative number. It will be good to receive a positive result, but if it is not, the time has come to take the necessary steps and start budgeting your money more carefully. Otherwise, take advantage of your positive Net Worth and start allocating for your retirement plan.

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