Why Calculate your Net worth?
It is a very simple process (given that you understand the steps and can source all the information required). This is usually a retrospective process, where you analyse everything you have, will have in the near future and want to have as a distant goal. A simple spreadsheet or a chart can be drawn at the end of this process, which will be your personal financial inventory. You must review your networth at regular intervals, ideally every 3-6 months to make sure you are working towards achieving your goals. When you are familiar with the process and get a proper handle on your finances, you can settle for annual revisions to make sure your targets are still met.
How- The process
- The first step in calculating your networth is to list down all your assets. This includes jewellery, equity investments, debt investments and cash. You need not include every item you own, but should consider those assets which are of considerable value. Start by making a list of all your primary (in most cases, the largest) assets. This list would include your home, land, any additional properties, any number of vehicles that you have under your (or the family's) name. Note down the nearest estimates of these assets in terms of the current market values. You must also analyse and account for your liquid assets- all your current, savings and fixed deposit accounts. Any cash deposits or even your retirement deposits would also fall under this category.
- The next step will be evaluating the total value of all the assets. This figure represents your total assets.
- Now, come down to your liabilities. Start with the biggest debts, mortgage loans, car loans and place them in one category. The next category will figure all your personal liabilities. This includes your credit card loans, student loans etc.
- Now, add up both sets of categories under total liabilities.
- Now, eliminate the total liabilities amount from your total assets amount and the final figure will be your current net worth. This figure is your comparison point for all the future calculations that you will add or subtract.
- If you are just starting out in your career, family or maybe just started seriously figuring your personal finance responsibilities, make sure to review your networth status every 3-4 months. This will give you the advantage you need to stay on top of your finances.
- Gradually, you can bring down the frequency to once a year revisions, but make sure to keep this up to date and preserve all your financial details, receipts, and decisions to enable you to include them in your calculations.
Tip: Make sure that you do not inflate your asset values when calculating their current appraisals. This might make your networth calculations look impressive on paper, but may not reflect the actual situation. It is best to take the help of a professional financial planner to help you calculate your networth, especially if are doing this for the first time . #gettingyourich