Business Online Calculating Your Net Worth The first step in calculating your net worth requires that you determine the value for all your assets (what you own). Include these categories in your assets:
Any money that can be accessed on short notice, such as checking and savings accounts; short-term investments, such as money market accounts and certificates of deposit (CDs); and T-bills (Treasury bills). Use their current value.
Stocks, bonds, mutual funds, stock options, annuities, life insurance, employer-sponsored retirement plans, and other employee benefits. Use their current after-tax value.
Calculate the current after-tax market value of your primary residence and any vacation homes or investment properties.
Cars, motorcycles, boats, jewelry, furs, wine, and electronic equipment are all part of your assets. Some assets, like artwork, antiques or a stamp collection, may appreciate in value, while others, like cars and boats, depreciate over time. Use their current market value.
Include anything else that does not fit into the aforementioned categories. Such items might include equity in a business or a trust fund.
The second step requires that you calculate a value for all your liabilities (what you owe). Include the following categories in your liability items:
This is usually the single greatest liability that many people have. Use the mortgage balance.
Any items that can be resold by the lender, such as cars, trucks, motorcycles, boats, and business loans. Use the loan balance.
Personal loans such as student or home renovation loans. The greatest source of unsecured debt for many people is credit cards. Use loan or credit card balances.
The third and final step is to simply subtract your liabilities from your assets. If your assets are larger than your liabilities, you have a positive net worth. If your liabilities are larger than your assets, you have a negative net worth.
Interpreting the Results
The results of this net worth calculation should help you work toward reaching a better financial picture. If you have a negative net worth, then you are "technically" bankrupt. If you have a positive net worth, it's a good sign that you're doing things right and are headed in the right direction. In either case, there will always be room for improvement.
Once you have an established value, you then have a benchmark to compare future results in order to see whether your situation is improving or not. A good rule of thumb is to calculate your net worth at least once a year.
Your personal net worth statement is the equivalent of a company's balance sheet. Just as a company prepares its balance sheet annually to check on its financial health, you should likewise prepare your net worth statement to ensure that your financial health improves each year.
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