How to calculate your net worth

BY ABOUT.COM

Your net worth can be a useful tool to measure your financial progress from year to year. Your net worth is essentially a grand total of all your assets minus your liabilities. There is no magic net worth number, but you should use your net worth to track your progress from year to year, and hopefully see it improve.

Calculating your net worth can be easy. It only requires some basic financial information regarding the things you own and the debt that you owe.

 Difficulty: Easy

Time Required: 10-20 Minutes

 Here’s how:

1.  Start by listing your largest assets. For most people, this would include their home and possibly vehicles. Make sure you use accurate estimates in current dollars.

 2.  Next, you’ll want to gather your latest statements for your more liquid assets. This includes checking and savings accounts, cash, CDs or other investments such as retirement accounts.

 3.  Finally, consider listing personal items that may be of value. This could include jewelry, coin collections, musical instruments, etc. You don’t need to itemise everything, but list items that are worth $500 or more.

 4. Now, take all of the assets you have listed in the first three steps and add them together. This number represents your total assets.

 5.  It is time to look ad liabilities. Again, start with the major outstanding liabilities such as the balance on your mortgage or car loans and list those.

 6.  Next, list all of your personal liabilities such as credit cards, student loans, or any other debt you may owe.

 7.  Add up all of your liabilities to come up with a total.

 8.  Finally, subtract the total liabilities from the total assets and you will have your net worth. It doesn’t matter how big, how small, or even if it is negative. This is just a starting point to have something to compare against in the future.

 9.  Repeat this process once a year and compare it with the previous year’s number. You can then determine if you are making progress or getting further behind.

 Tips:

 -Be conservative with estimates, especially with home and vehicle values. Inflating the value of large assets may look good on paper, but may not paint an accurate picture of your net worth.

 This is potentially quite a scary thing to set out to do, but it shouldn’t be. Having a complete and unadulterated overview of your finances is fundamental to having a good grip on them. It can provide motivation either to keep going if you’re doing well, or it can be a reminder that you need to make some changes financially.

Source: about.com