How To Calculate And Track Net Worth.
Net Worth is one way to evaluate your finances and understand where you really stand when it comes to building wealth.
To calculate your net worth simply make a list of your assets giving each an accurate value and make another list of your liabilities. Then subtract and find the difference. If you have a positive number you have a positive net worth. If your answer is negative you have a negative net worth.
It’s easy to see which is better. Tracking your net worth over time will help you see whether you are making progress toward building wealth or losing ground.
Here are some important ideas to keep in mind when you are tracking your net worth.
A net worth statement is simply a list of assets owned and debt owed. For most individuals, it should easily fit on a single page. To track your net worth only two decisions need be made: (1) what should be included in the net worth statement; and (2) what tools, if any, should one use. Let’s look at both of these.
For purposes of monitoring your finances, it’s not necessary to include literally every asset you own. I include all financial accounts (e.g., checking, savings, investments, retirement accounts), real estate and businesses.
I do not include personal property, such as vehicles or furniture. Many people include the value of their vehicles, in part to offset the impact of having car loans. I don’t include vehicles or other assets that depreciate over time. All debts are included on the statement.
Most assets are easy to value. Two potential exceptions are real estate and businesses. My approach is to be very conservative on the valuation. For real estate, I use Zillow’s zestimate. I’ve found that it undervalues real estate. When you factor in the costs of selling real estate and potential tax liabilities, however, it’s reasonably accurate.
As for tools, there are several free and low cost options. The first is a spreadsheet. A simple Google GOOGL -1.27% Sheets spreadsheet is a great way to track your net worth.
There are also several automated tools to track your net worth. Some of the more popular options include Mint and Personal Capital. These options not only track your net worth, but also provide excellent tools for evaluating investments and managing your budget. Personal Capital also enables you to connect directly to Zillow to track the value of real estate.
– via Forbes
What To Do Once Your Know Your Net Worth
Now that you’ve done your homework, made your lists and come out with your net worth, what do you do with that knowledge. If you sit on it and do nothing then it will do you no good. On the other hand, if you use this information to evaluate your financial habits and make some changes it can be a valuable tool.
Here is one look at how to evaluate your net worth.
What does a negative net worth mean?
Some people panic when they calculate their net worth and discover that it is negative. This is usually the result of a young earner with a substantial amount of student loans and also a loan on a rapidly depreciating automobile. Why is your net worth negative? You simply haven’t earned enough money yet to overcome the weight of the debt. Don’t worry, it will come.
However it can also be due to overborrowing. For instance, if you have racked up huge credit card bills, and are not paying them down. This creates a large number in the liabilities column, but no valuable asset to offset it.
How can I make it bigger?
Every time you make one of those debts smaller or one of those assets larger, your net worth will increase. So, you can increase your net worth by paying off your debts, saving and investing money, and reducing your spending.
On the other hand, your net worth goes down when you spend money on “small” things, such as clothes, food, and even interest on loans. Whenever you buy something frivolous, your net worth goes down.
– via The Simple Dollar
Do you know your net worth? How often do you calculate it?