Figure Out Your Net Worth

It is important to know your net worth so you can be more in tune with your present financial situation and assign yourself a target for the future. It’s also a good idea to figure out what your net worth is since it is likely to be taken into consideration when you apply for loans. Your ability to pay back the loans is based not just on your credit history but also on your actual financial worth.

This may appear somewhat odd to boil down your life to a number, but just remember it’s just a figure of your current assets not an exhaustive analysis of the complete person.

The calculation may get quite involved, depending on the total number of assets one has. When you begin, add the money you have in your bank: checking, savings, investment and retirement accounts as well as the contents of a safe deposit box, if applicable.

Other assets that are often forgotten include whole life policies, annuities, etc. Notably, term life insurance policies do not count since they will only possess a cash value when the insured person passes away.

Real estate and vehicles are considered assets as well but only after any related loans are subtracted from their total value.

Other physical assets that you may have include: art, furniture, jewelry and even major appliances. Basically try to extrapolate how much money you would earn if you sold everything you owned.

The next step is to take the total value of the assets and subtract from it all of the money that you owe, such as: credit card debt, loans, etc’. Any recurring bills, such as from phone or utilities are not part of the debt.

So now you have your net worth in front of you. No need to panic if you see a negative number. This doesn’t mean that you will get your loan request denied but, for the long term, you will need to turn the minus sign into a big plus. To achieve this, begin by paying off your debts first before obtaining more assets, which may not bring in capital in the near future, to affect your net worth.

Some people prefer to keep their net worth calculations to liquid assets such as cash and retirement accounts, and then subtract the debt. This is because the actual market value of physical assets, such as homes, isn’t truly known unless they are sold.

At any rate, do make it a regular practice to figure out your net worth.