How To Calculate Your Net Worth

Do you know what your net worth is?
My name is Bridget and I'm the founder of
Money After Graduation and I'm here to
teach you how to calculate your net worth.
Net worth is an overall measure of
your financial health.
It's calculated by taking your total
financial liabilities and subtracting
them from your total financial assets.
While this might seem like a simple
calculation, a lot of people don't know
what numbers go in the equation.
Let's begin with assets. An asset is any
liquid or illiquid financial resource that
you have. It includes financial
securities like cash or stocks that you
might have in bank accounts.
It also includes other financial
resources that you can sell for cash,
like property. When it comes to
calculating your assets, you need to make
a list of all the accounts you have and
the amounts in each. I suggest only
counting long-term savings when you're
adding up your financial asset accounts.
Don't include your checking account
that's used for your day-to-day banking.
Anything that's going to be depleted
within a month doesn't count as an asset.
You should also leave out any other kind
of planned spending like savings for
vacation. If you're planning on spending
this money on something that's going to
be consumed and not converted into a
long-term financial asset, then it can't
be counted as a financial asset right now.
When it comes to other assets like
your home or your car, you're going to have
to do some research to determine their
value. Use your city's property
assessment or a real estate website to
make a guess at the value of your house,
check auto sales websites for the make
and model of your car to determine what
it's currently selling for. You won't know
exactly how much these assets are worth
unless you sell them so it's best to
slightly underestimate their value,
especially for your vehicle.
Finally, you might own some vanity assets
like jewelry or collectibles that you
might be tempted to list on your net worth
statement. I want to discourage you from
doing so.
I call these items vanity assets because
people usually like to keep track of
them to feel richer than they really are.
While it might be true that you can sell
your jewelry or collectibles or other
material items for cash,
chances are you won't get the value that
you think they're actually worth -- or there
might not even be any buyers! For this
reason, leave small items or ones where
you're really uncertain about the value
off of your net worth statement and focus
primarily on large cash accounts, your
main residence, and your vehicles. Next
let's calculate your liabilities.
Liabilities are any debts or financial
obligations you have. For most people,
this means loans, credit cards,
lines of credit, but it also
includes things like unpaid parking
tickets or taxes owed.
Do not put your regular monthly bills
under liabilities. Anything that's going
to be settled within a month isn't a
liability. When it comes to calculating
your liabilities don't ignore "good debts".
Student loans and mortgages are still
financial obligations and belong on the
liability side of your net worth equation.
Even if you borrowed money in order to make
more money, it's still money that you owe
and you have to pay back.
Therefore, it's a liability. Once you have
all your assets and liabilities listed
and added up, you can calculate your net
worth. Simply subtract the total
liabilities from the total assets and
the number left over is your net worth. If
you owe more than you have in assets
your net worth will be a negative number.
If you have more assets than you do
financial liabilities, your net worth will
be a positive number.
Ideally, you want your net worth to be the
largest positive number possible. You
achieve this by continuously reducing
your liabilities and increasing your
assets year over year. You can track
your net worth on a monthly basis but
that's a bit tedious. I usually suggest
tracking your net worth on a quarterly or
annual basis to make sure it's headed in
the right direction.
I've created a simple net worth
calculation spreadsheet and left the
link in the description below. Download
it and enter your numbers to see where you
stand.
I hope you found this video helpful and
learned how to calculate your net worth. If
you did please give it a thumbs up and
subscribe to my channel. I will see you
next week!

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