YellowHub
YellowHub
Nov 4 · 3 min read

Determining one’s net-worth is not only for the rich. The purpose pf calculating one’s net-worth is to know your current financial condition.

Your net worth is the excess of your total asset after your total liabilities have been deducted.

Put differently, it is the difference between what you own and what you owe.

This number would come very handy in accessing your financial health and how well you’ve done up until this moment. More importantly, consistently keeping records of this number gives a more meaningful view and helps draw the line connecting where you are to where you want to be financially.

Let’s walk through how you crunch this number.

You’ll need a detailed list of all your assets - from house, personal properties like vehicles and jewelry, investments down to cash, as well as your liabilities, which includes loans, subscriptions, and other obligations. You’ll find it helpful to keep a secure folder with information on all financial assets and liabilities to be updated at least once a year.
A list from the largest to your most liquid asset could help ensure nothing is left out. While summing up, it is important you consider the market value of your assets and from a conservative stand point so you don’t get an unrealistic value for your assets. A conservative approach to value a real estate property would be to relate its worth to that of similar properties around. This gives a more precise opinion about its market value as opposed to an inflated value.

You might as well want to exclude "false assets" from the calculation of your total assets. "False assets" are owned by you, but rather than make you money, they take money out of your pocket.

Now turn to the liabilities. You could begin as well with large outstanding debt or loans like a car or real estate loan. Take a list of all personal obligations like student loans, consumer debt... Then take the sum of all liabilities you have listed to determine your total liabilities.

Now you have the sum of your total assets and total liabilities. Simply subtract the total liabilities from the total assets. There you go.

What is your net worth?

A positive value implies you have more than you owe while a negative value indicates you do not have sufficient to pay back your obligations.

Where do you go from here?

  • You could improve your status either by increasing your assets or decreasing your liabilities.
  • For the former, you might consider converting your liquid savings to investment assets that could grow and earn you more income.

Making debt repayment and reviewing your spending pattern could also free you from some obligations and make your net worth even more attractive.
Whatever your choice is, calculating your net worth isn’t a one-time thing.

Repeat the process at least once a year and compare it with the previous year’s number.

    YellowHub

    Written by

    YellowHub

    A financial services brand which proffers both advisory & planning services to young professionals in diverse industries. 💰🤑📚 Financial Literacy platform

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