It’s not how much you make, but how much you keep. Net worth gives you a full picture of your financial health that goes beyond your salary. Keep reading to find out why net worth is important and how to calculate it.
What is Net Worth?
Net worth is a measure of your financial health.
It’s basically taking all your assets, or things you own, and subtracting it by the things you own, like credit card bills, mortgages and student debt.
Assets – Liabilities = Net Worth
So if you take those numbers and subtract them together if it’s a positive number, meaning you have more assets, then your net worth is positive, but if you owe more than you own your net worth is negative.
You’ll find the more you are exposed to the stock market, the more your net worth fluctuates, because your stocks are fluctuating. If you have more real estate in your assets, your net worth may not have daily fluctuations but will grow substantially year over year.
What are Assets and Liabilities?
Assets are anything with a resale value, meaning I can sell it today for cash. You may love that purple skirt your great grandmother gave you, but it isn’t something you could re-sell that could count as an asset (but make sure you confirm, hah!).
Liabilities, on the other hand, are things you owe to other people or companies. It can be a legal obligation (mortgage, personal loans, child support etc.) as well as regular consumer loans like credit cards.
Net Worth Example:
Consider a gal with the following assets (see reel here if you prefer audio and visual):
Assets include:
- Cash: $5,000
- Primary residence valued at $300,000,
- Retirement investments with a market value of $45,000,
- Automobiles and other assets valued at $0.
Liabilities include:
- Credit Cards balances : $10,000
- Student Loans: $40,000
- An outstanding mortgage balance of $200,000
The gal’s net worth would, therefore, be calculated as:
[$5,000 + $300,000 + $45,000 ] – [$10,000 + $40,000 + $200,000] = $100,000
How Often Should I Check My Net Worth?
There is no right or wrong answer. In some seasons of my life, I would check daily (insert Global pandemic…) A good guideline is monthly or quarterly. But at minimum you’d want to check it once a year.
You’ll find the more you are exposed to the stock market, the more your net worth fluctuates, because your stocks are fluctuating. If you have more real estate in your assets, your net worth may not have daily fluctuations but will grow substantially year over year.
As a reminder, net worth does not equal your life worth. So take a moment to evaluate how this number makes you feel. It is just one measure of Financial Health.
What Tools can help me track my Net Worth?
There are several apps that can help you calculate your net worth. My favorite is Personal Capital. I love their dashboard that creates fun charts to track my money like this.
They currently have a promotion for a $20 Amazon gift card if you sign up using my referral code: https://pcap.rocks/everydayfina
For other apps see Article: What are the Best Budgeting Tools?
