These assets would include your savings accounts, cash, term deposits, etc. Make a list of all of your items that may be of value. These can include jewelry, watches, musical instruments, collections, antiques, heirlooms, etc.
Par Rachit Chawla
Your equity is the total of your financial and non-financial assets, minus your total outstanding debt (mortgage, car loan, personal loan, home loan, business loan, credit card debt, etc.). In simpler terms, this is the amount of money you would have, in cash, if you were to sell all of your assets and pay off all of your debts.
The net worth of an individual is the indicator of his financial situation. While there isn’t a preset magic number of net worth that you should be looking for, knowing how to calculate your net worth can help you track your financial progress from year to year.
Calculating your net worth is not a difficult process; all you need to do is put together all the information regarding your assets and liabilities. Create a secure file where you can keep all information regarding your assets and liabilities which would be updated at least once a year.
Calculate your wealth
The easiest way to start is to calculate your most important assets first. It could be your house, your car, or any other major investment. If you are running a business, you can also include the market value of your business.
The next step would be to collect your latest statements for your most liquid assets. These assets would include your savings accounts, cash, term deposits, etc. Make a list of all of your items that may be of value. These can include jewelry, watches, musical instruments, collections, antiques, heirlooms, etc.
Calculate your liabilities
Just like you did with assets, calculate your biggest liabilities first. Start by calculating debts such as your mortgage, car loan, personal loan, or any other large debt you have incurred. These could include any unpaid balances on your credit cards, remaining student loans, or any other debt you need to pay off.
Do the math
Simply subtract the total number of liabilities from the total number of assets to get your net worth. Don’t be discouraged if the number isn’t too high; even though it’s negative, it doesn’t necessarily mean you should be worried, especially when you’re just starting out in your career. Update your assets and liabilities on file at least once a year (preferably on the same date) and calculate your net worth. By comparing this net worth with the net worth of the previous year, you would be able to assess your financial growth fairly accurately.
Some things to consider
When calculating your net worth, be as careful as possible while estimating the value of your assets. If you have liquid savings, you should keep them in high yield accounts. This would help you grow your wealth faster.
If you have a lot of unpaid debts, work on paying them off as quickly as possible. You can consider refinancing or consolidating debt at a lower interest rate to speed up your debt repayment process. Take a close look at your budget and cut expenses wherever you can. The capital you save can either be spent on low risk, medium / high return investments, or on debt repayment. If you still have capital to spare after that, you absolutely need to create a corpus to support your financial needs after retirement.
The author is CEO and founder of Finway FSC
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