Do you work hard to improve your finances but are not observing progress towards financial stability? If so, it might be time to calculate your net worth. Your net worth is the difference between your assets and liabilities. You must know your net worth to grasp your current financial health, as it reflects the difference between what you own and what you owe.
Calculating your net worth is easy, but getting the actual number is invaluable. This information is crucial, irrespective of your financial status. It helps you highlight the areas where you need modifications in spending patterns and track your progress towards financial objectives better.
Steps to calculate your networth
Step 1- List your assets
List down everything you own that holds value. These assets include your home, car, savings, mutual fund investments, stocks, gold or diamond jewellery, and other valuable possessions. Consider their current market value only.
Step 2- List your liabilities
List down your debts or obligations, such as car loans, personal loans, home loans, and income tax owed. Write down the current outstanding balance for each liability.
Step 3- Subtract liabilities from assets
Subtract the sum of your debts from the total value of your possessions. The outcome is your net worth. A positive value indicates a situation where your assets surpass your liabilities. A negative value indicates the need to reassess your financial situation and identify strategies to reduce debts.
Calculating your net worth through online tools
Despite the apparent simplicity of these calculations, it can be difficult to recall all of your finances together and then calculate them manually. Net worth calculator come in handy here. These online calculators help you estimate your net worth within seconds and provide a clear picture of your finances by highlighting the gap between your assets and obligations.
These calculators usually have user-friendly interfaces and incur no cost. So you can use them multiple times without any charges and get error free calculations. It makes the tedious task of figuring out values of assets or liabilities quick and seamless.
For example, Let’s assume you own a home valued at Rs. 70 lakhs, have Rs. 10 lakhs in savings, and Rs. 5 lakhs in mutual fund investments. On the liabilities side, you have a personal loan of Rs 4 lakhs and a car loan of Rs. 3 lakhs. Here’s an example to help you understand how to use the net worth calculator.
- Home value- Rs.70 lakhs
- Savings- Rs.10 lakhs
- Investments- Rs.5 lakhs
Total Assets = Rs.85 lakhs
- Personal Loan- Rs.4 lakhs
- Car Loan- Rs.3 lakhs
Total Liabilities= Rs.7 lakhs
Net Worth= Total Assets-Total Liabilities
Thus, the total net worth is= Rs.78,00,000 i.e. Rs.78 lakhs
The bottom line
Knowing your net worth helps you make calculative decisions about your investments, debts, and expenses. Follow the steps explained above for a simple net worth calculation.
A point to note is that your net worth is a snapshot of your financial situation at a specific time. Changes in your assets or liabilities’ value, interest rate fluctuations, rising inflation, income hikes, or job stability also affect your net worth. To track your progress towards your objectives, it’s beneficial to calculate your net worth every six months. To simplify the process, use a net worth calculator online and make the calculations quick, easy, and errorfree.