What’s a Net Worth?
Posted: November 13th, 2008 | Author: Mo2 | Filed under: Finance, Planning | Tags: Budgeting, Finance, Financial Freedom, financial plan, Investing, Net Worth, Savings |What is Net Worth Calculation?
Net Worth Calculation is when you take all your assets and subtract your liabilities and find out what you are truly worth.
Why is this necessary?
There are quite a few reasons why this is important.
1) It makes you understand your current financial status and makes you more disciplined with your finances
2) It gives you a clearer view about your goals and the path to achieving them
3) Knowing where you stand, knowing your net worth can leading to confidence and security
4) By periodically checking your net worth, you can see what kind of progress you are making.
How do I calculate my net worth?
Simply put, you need to calculate all of you assets and subtract all of your liabilities from your assets and you have your net worth. However, it sounds easier than it really is because this could take some digging deep to get an accurate net worth statement. For example, that old hockey card you have or the stamp collection your uncle Phil left behind is still considered assets, however illiquid they may be.
I may eventually put a downloadable form that you can fill out. But for the time being, think of anything that is of value. Don’t count absolutely everything you own, that 15-year-old spoon you use every morning for your grapefruit breakfast probably isn’t worth much unless it’s made of gold.
Here are some examples:
Assets: GICs, treasury bills, cash and chequing accounts, money market funds, bonds, mutual funds, common/preferred stocks, businesses, real estate, tangible assets, residence, automobiles, and valuable personal property.
Liabilities:
Bills, credit cards, loans, mortgage, life insurance loans, and other debt.
These lists aren’t exhaustive but you get the general flow. Dig down and try and put everything you can think of down on paper.
Once you’ve written everything down and done your calculations, you’ve found your net worth! Congratulations! Now you need to calculate your cash flow so that you can make your net worth statement look even better!
Leave a Reply