How Much are you Worth?

Calculating your net worth gives you a yard stick to measure your financial health, and is a means of tracking your wealth building progress.

Your statement of net worth is similar to a financial balance sheet, it shows your assets and your liabilities, and their net value. Formal accounting principles are easily applied to personal finance and are really useful in managing your money. Don’t be put off by this off though, calculating your net worth is really easy.

Calculating your net worth.

1. Write down all of your assets – anything that you own (even if they are financed). Divide them up into personal assets and investment assets (see example below).
2. Estimate their value and jot this down.
3. Total the amounts.
4. Write down all your liabilities (debts). Divide these into personal and income producing liabilities.
5. Look at current statements to help you work out the amounts of all your liabilities.
6. Total your liabilities.
7. Deduct the total liability amount from the total asset amount.
8. The final figure is your net worth.

For an idea on what a statement of net worth looks like, check out the example below. I have tried to include as many categories as I could think of; you may have different assets and liabilities that aren’t included here. If an category doesn’t apply to you, leave it out.

Notes:

• On a traditional balance sheet, the standard way of dividing up your assets is into “current” assets which are liquid assets such as cash in the bank, shares etc; and “non-current” assets, assets that are not readily turned into cash, such as your home. The same applies for liabilities. I prefer the above method for calculating your personal net worth, because I want to be able to focus on those assets that build wealth – investment assets.
• When working out the market value of your home, be conservative, it’s better to undervalue than overvalue. Give your local real estate agent a call if you need help working out the value of your home.
• It’s easy to overestimate the worth of our cars and household goods. Unless you own antique jewellery or a rare collection of Elvis memorabilia or the like, your personal possessions aren’t going to have much street value. Think if you had to sell your stereo, how much would it really fetch? Then halve that amount.
• It’s no secret that I love excel. If you are proficient with excel, then you can use formulas to link the balances in your statement of net worth such as your bank balances to your budget so that they update automatically. Alternatively, if you use a personal finance software package such as quicken, it will help build and analyse your statement of net worth.