Your Net Worth is an easy calcualtion to see how well you’re doing financially. This isn’t the end-all in terms of financial growth, but it’s one means of finding out how things are going.
Net worth is simply the difference between your assets and liabilities (positives and negatives):
Net Worth = Assets – Liabilities
An asset is anything that counts as a posive, such as checkbook balance, savings, retirement accounts, house, car, etc. Consumables, such as food, clothing, computers, etc don’t count.
A liability is anything that counts as a negative – mortgage, car loan, credit card bills, student loans, tax debt and so on.
So if you own a $200,000 house and have a mortgage for $150,000, your net worth would be $50,000. If you only have student loans and credit card bills and are renting a house, your net worth is negative. This is not a good place to be!
Of course, the hard part is that there are some things that you can’t put a value on. Patents, books, experience, knowledge… all of these are very useful and potentially HUGE assets, but without a dollar figure, it’s hard to figure them into a net worth calculation.
Ok, let me give you a personal example. We have a number of checking and savings accounts, a Roth IRA, a 401k, and we own a home. Our only liability is our mortgage (yay for being debt free other than the house!) So our net worth is calculated as follows:
Cash accounts: $35,000
Roth IRA: $27,000
House: $207,500 (what we paid for it a couple months ago, prices haven’t changed significantly recently)
TOTAL ASSETS: $297,500
TOTAL LIABILITIES: $165,000
$297, 500 – $165,000 = $132, 500
NET WORTH: $132, 500
Not too hard, is it? So go ahead, find out what your assets and liabilities are and let me know how it turns out in the comments!