In the finance world, sometimes your net worth defines you – financially, at least. 😉 But what is it? And how do you calculate it?
Essentially, your net worth is a snapshot of your financial health. Think of it as a scorecard for your finances.
You calculate it by adding up everything you own – these are called your assets. This can include all sorts of things, like your house, your car, any money you have in the bank, and your investments. Basically, if it has value and you own it, it counts as an asset.
Next, you subtract all the money you owe, which are called your liabilities. This includes stuff like your mortgage, car loan, student loans, credit card debt – basically any money that you need to pay back to someone else.
The formula is pretty straightforward: Your Assets minus Your Liabilities equals Your Net Worth.
Let’s put it in real life terms. Say you own a house worth $250,000 and have a car worth $20,000. You have $30,000 in your savings account and $50,000 in various investments. That adds up to $350,000 in assets.
But wait, you also owe $200,000 on your mortgage, have a $15,000 car loan, and $10,000 in credit card debt. That adds up to $225,000 in liabilities.
So, to find your net worth, you subtract your liabilities from your assets. In this case, $350,000 (assets) minus $225,000 (liabilities) gives you a net worth of $125,000. Congrats, you’re doing well!