How To Calculate Your Net Worth

January 25, 2008 · 2 comments

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If you’re serious about getting a grip on your financial situation there is no better starting point than calculating your net worth. No other figure will give you a clearer indication of whether or not you are making progress towards your financial goal.

It may seem intimidating but the calculation is really only a matter of adding and subtracting. The hard part is digging out and actually looking at the balances on all of your outstanding debt including mortgages, student loans, car loans, and credit cards.
Here is the formula in it’s most basic form:
Net Worth=Assets-Liabilities
Assets:
An asset is anything of value* that you have legal ownership of. This could include your house (if you own one), car, money in savings, retirement accounts, bonds, stock certificates, land, 4wheelers, motorcycles, exc. You will need to assign a reasonable value to each of these “assets” for the purpose of this calculation.
Liabilities:
A liability is any debt you are responsible for. This would include the remaining balances on your mortgage, car loans, credit cards, student loans, personal loans, boat loans, motorcycle, back taxes, exc. Do not include regularly occurring payments for items such as utilities, and insurance for this calculation.

Now comes the moment of truth. Get a scratch piece of paper and list all of your assets and their values on the left side of the paper. Then list your liabilities and their values on the right side of your paper. Now, add up your asset column and do the same for you liabilities column. To finish, subtract your total liabilities from your assets. Congratulations! You’ve done it!

Now what? Don’t be surprised if this number is negative! Especially if you are fresh out of college with student loans and credit card debt! A little focus is all you need to get yourself rolling on the path towards financial independence.

*Don’t worry about personal items such as clothes, electronics, jewelry, recreational equipment, exc.

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{ 2 comments… read them below or add one }

Clancy January 26, 2008 at 5:21 am

What about bikes? I have some expensive customs as well as some Rat’s.

Ben Dinsmore January 26, 2008 at 10:06 am

definately count the Rats! Just don’t let they IRS know how much they’re worth or they might try to hit you for capital gains!! LOL

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