Week 5 – How To Calculate Your Net Worth
In its simplest form, your Net Worth is the difference between what you own and what you owe. Assets are what you own and Liabilities are what you owe. The equation for working out your Net Worth is Assets-Liabilities= Net Worth.
Assets add positive value to your Net Worth i.e. they are mostly items you own that you could sell for cash. Some examples of Assets include:
- Real estate
- Owned vehicle
- Retirement account
- Other personal items
Liabilities add negative value to your Net Worth i.e. they are debts that you owe. Some examples of Liabilities include:
- Consumer debt
- Students loan
- Car loan
- Medical bill
- Taxes owed
If you have more Assets than Liabilities then you have a Positive Net Worth, however, if you have less Assets than Liabilities then you a Negative Net Worth.
Growing your Net Worth
It is important to focus on increasing your Net Worth by decreasing your Liabilities if your goal is to live a financially independent life. If your Liabilities are dragging down your Assets then you could be at a constant risk of falling into a large amount of debt.
- Make a list of your Liabilities from smallest to largest owed
- Pay off your smallest debt first, whilst paying off all remaining debt
- Once you have paid off your smallest debt, move onto your second smallest and so on until all of your debts have been paid
- Grow your Assets
Good luck building those Assets!
This post is a part of a #weeklywins series hosted by @Lottiebudgets and @CharlotteMusha (Follow us on Instagram)
For more tips visit CharlotteMusha.co.uk