How Do I Calculate How Much I Am Worth?

Your net worth can say a lot about your financial situation and the status you hold in the eyes of lenders. Understand how to make some simple calculations to determine your personal net worth.

What does net worth mean?

To understand your net worth, it is a good idea to think about your salary. Not the amount you earn, but how your net salary differs from your gross salary. Your net salary is the amount you receive when taxes and other payments have been taken away from the gross amount. In the same way, living in a million dollar house does not make you a millionaire. You need to work out how much equity you currently have in the property, and also how much you will have paid once your mortgage is finally paid off. In this respect, your net worth will alter over time as your debts diminish or grow, and the value of your assets fluctuates either way.

The two calculations you need to make to determine your net worth are concerning your assets and your liabilities.

Your assets:

Your assets are the things that you own. These will include such things as savings, cash, investments, vehicles, furniture, property, and jewellery. For the purpose of calculating net worth, your assets will include items you still owe money on, although the amount you should note down is the current market value, not the price you paid originally. With a car, you will likely have lost money as vehicles depreciate over time, whereas with property there is a good chance you will have gained.

Your liabilities:

Your liabilities are the things that you owe. These are the debts you are currently carrying that detract from the above assets. Again, the important figure is not the one you originally paid, but the amount you will end up paying once the total interest charges have been included. This means that a car loan should be calculated as the final sum paid at the end of the loan agreement.

When you have calculated these two amounts, you can subtract the liabilities from the assets to give you your net worth. Ideally, you should have more assets than liabilities, but if it is the other way around it may not be as bad as it seems if some of your assets are predicted to make large increases in value over time. Remember that your net worth is a snapshot of your financial standing right now and it will be changing even on a daily basis.

Knowing your net worth can be useful if you have some important financial decisions to make, such as assessing how well-placed you are to commit to some further spending or investments.

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