Do you envision yourself free from debt with lots of savings in the bank?
Everyone has their own financial goals, some are large, some not so large. You may be experiencing a financial downfall, but you will not always be in this situation. Freeing yourself from the cycle of borrowing-paying-borrowing will help. To do this, you must be able to calculate your personal net worth.
Net Worth may sound like a big financial word, but it is a simple process and a tool that you can use to progress towards your financial goals. To put it simply, your net worth is the total of all your assets minus the liabilities you have. The bigger the figure, the better you are doing financially.
However, if the number is a negative, it means that you are in financial trouble and are headed towards financial disaster if you don’t take measures to correct this right away. Also, a negative number means that you have more liabilities or debts than you have assets and income.
Calculating your net worth involves a simple process. The goal should be to improve year after year and see your net worth increase. The process may take less than half an hour, depending on how organized you are with paperwork. Here is a step-by-step process of what to do:
1. Make a list of all your assets, including everything you own, money, investments and items of value. This may be both tangible property and intangible property. Your bank statements including savings accounts, CDs, retirement accounts is your liquid money. You must also take into account any personal valuables such as precious jewelry, valuable collections, expensive antiques and any other items that have monetary value. After jotting them down one by one, add the worth of these items and this amount is the value of your assets.
2. Make a list of all your liabilities, just as you did for your assets. Liabilities are anything that you owe and make payments on, such as personal loans, a house, real estate or anything that takes money from your pocket and has an outstanding balance. Add it all up and the amount you get will be the amount of your liabilities.
3. Subtract the liabilities figure from the assets figure (assets – liabilities = net worth). The total figure equals your Net Worth. This figure may be small, large or even in a negative number. But the important issue is that you know a little more about your financial status and can take steps to improve it.
Each year, it is important that you repeat this process to see any improvements in your net worth. If you see the numbers improving, then it is a good signal that you are working towards increasing your net worth. However, if you see a negative number increasing or a negative number that was not there the previous year, then this is a signal that you are not doing well with your finances.
If you see that you cannot handle your finances on your own, you can seek help from a financial planner who will help you with a budget and a financial plan to get out of debt. Financial planners also help you find ways to increase your net worth. They can help you reach your financial goals and help you understand the necessary changes that you need to make to achieve those goals. They will devise a workable plan according to your particular situation and modify it as needed to suit your current situation as things change.
Your net worth can also be helpful when you apply for loans, such as payday installment loans. You will be able to assess how much you can borrow and how you will be able to repay the loan.
Although net worth is only a number, it is a reflection of how you have been handling your finances and has a great impact on your financial future.