Calculating your net worth is a simple task, but it’s not always easy to do. The reason is that there are many different ways to calculate your net worth, and most of them require you to make assumptions about the value of different assets.
The first thing you need to do before calculating your net worth is to determine what type of assets you own. There are several ways to do this, but they all boil down to answering three questions:
1. What is my total liquid assets? This includes cash money in checking accounts and money market accounts, stocks and bonds, real estate holdings and other property such as cars or boats.
2. Does my total liquid assets exceed my total liabilities? If so, then we can consider ourselves financially stable enough to work on our net worth calculation. If not, we need to make adjustments for the two items above or else our calculations will be inaccurate.
3. What’s my average daily balance? If I’m spending more money than I earn each day, then I will have a negative income statement and thus a negative net worth. To correct this problem, simply add up your daily income from all sources including salaries, bonuses etc.
Net worth is calculated by subtracting the value of your liabilities from the value of your assets. As an example, if you have a mortgage that is $200,000 and a car worth $10,000, then your net worth would be negative $190,000.
Net worth is different than liquid assets or cash on hand because it includes all your assets minus all your liabilities. This includes investments like stocks and bonds, retirement accounts, real estate, bank accounts and savings accounts. It also includes any personal loans or lines of credit that you have signed up for with friends or family members.
Net worth can fluctuate over time as interest rates change or if there are periods where more income than expenses come in so that more money is available to invest or pay down debt.