Follow These Processes To Calculate Your Net Worth Easily

Have you ever tried to calculate your total net worth? Perhaps you have not done it before, or your financial advisor may not tell you this previously. Well, it is important to track your total assets and their present value (PV).

Apart from keeping track, the calculation also helps to understand the present financial condition. This has an intimate connection with improving financial status. In order to take some different steps, it is important to know how much you have in your hand.

Therefore, it is important to know the value of your current assets and how much you owe to lenders. Besides knowing the value, it is equally important to repay all your outstanding debts so that you can save more. Net worth is associated with all these, and for this reason, it is important to calculate it.

What is net worth?

It is a sum of the total value of all the assets and liabilities of a person. After calculating the value of different asset classes, the result needs to be subtracted from the total amount to get the actual net worth. Remember, you should not add the liability (i.e. debt) into the value of the assets.

Meanwhile, it is not only the calculation of only virtual assets like shares, stock, bonds, CDs etc. Rather it is also a collection of all the current assets, including liquid cash, whether it is inside your house or in a bank account. Include all of them in the final calculation.

Often, due to emergency situations, people have to take out loans for bad credit with no guarantor and add-on benefits. As a result, borrowers require to repay the entire borrowed amount within a specific time period. Therefore, during that period, a borrower needs to carry on the burden of the loan. Borrowed amounts will never add to the calculation of net worth.

  • Operation process of net worth

Although net worth is a total of everything you have in your hand technically, it denotes the scenario where you require selling even a single asset. After selling all the assets, even a small watch, the amount which will come into your hand denote the net worth. Besides, it does not calculate how much a borrower owes to the market.

People who have frequent borrowing habits can get a clear financial picture by following the process of net worth calculation. It has been observed that in most cases, those people often face negative net worth due to huge amounts of outstanding debt. Basically, when the owing amount is larger than the assets you own, then the result becomes negative.

Therefore, by calculating net worth, one can easily understand how much debt he has as outstanding. Moreover, it helps a person take proper measures so that the entire outstanding debt amount becomes zero. Undoubtedly, the calculation of net worth helps to take proper steps to manage personal finance.

  • The calculation process of net worth

There is no doubt that the calculation of net worth is not at all a complicated process. But to proceed with the calculation process, you need to sum up all the financial data of the last 5 years. It may seem to some people a bit tiresome, and for this reason, those people like to hire a CA or financial advisor.

We suggest not sharing your confidential information with everyone. Rather, try to continue with the calculation process on your own. Even when you will share all those financial details with your advisor or CA, he will also advise you to keep all those information under lock and key. However, the calculation of net worth conducts in two steps.

Sum up all the assets

1. Begin the calculation with your highest value assets. For example, if you have a house or a business or even any car or personal yacht, then put down the value of that asset. Please ensure that you know the accurate value of the asset because it will cover 40% of your total worth.

2. Secondly, you require summing up all the bank statements of minimum the past 3 years. It will help to track how much balance you have in your bank account presently.

3. Thirdly, if you have any valuable belongings like jewellery, bitcoin, expensive house appliances, costly dresses, curios, etc., count them into the asset value.

4. Afterwards, go through the list and make sure that you have not missed any of them. Now sum up all values together to get a single number. After calculating the value now, you have the exact worth of all the assets.

Sum up all the liabilities

1. When people are in necessity of urgent funds, then they do not have any option without borrowing instalment loans even for poor credit scores. Well, borrowing is a good habit till you are able to repay the loan amount. While summing up the liability, you need to calculate the entire outstanding debt.

2. After calculating the outstanding debt amount now, you need to move on to your cards and credit scores. Take a look at your credit score because you will be able to get another loan based on that. On the other hand, do not forget to calculate the remaining credit balance.

3. Lastly, you need to calculate all the borrowed amounts by adding them. The amount which you will get represents the entire liability.

Now, after getting the total of liability and assets, you need to subtract the liability total with assets. The result may come as a negative one. Do not be afraid of that because it will represent the present financial condition of your family. An ideal net worth score is certainly a positive one.

Moreover, there should be a good number of differences between the asset and liability. If the asset score is smaller than a liability, then you need to be serious about making financial decisions. So, if you are thinking about managing your finance, then go for a net worth calculation.