Sure, your net worth probably isn’t in the billions like Elon Musk or Rihanna – but it’s still worth understanding.
More than half of Americans (51%) don’t know how to calculate their net worth, according to a survey conducted by Qualtrics on behalf of (credit score))(https://moneywise.com/managing-money/credit-score /how-to-get-a-free-credit-score) from Credit Karma, published in April.
Additionally, nearly a third of Americans (31%) have a net worth of $0 or less, meaning their total liabilities match or exceed their assets.
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The average person may not earn as much as a CEO or celebrity, but knowing your own net worth can be a useful tool for improving your financial health.
Here’s how to determine yours and get it out of red.
What is net worth?
Net worth is the value of an individual’s or business’s assets minus liabilities. It is a measure of wealth or financial status, and it can provide an indication of the overall financial health of the person or business.
High Net Worth Individuals (HNW) are those who typically have a net worth between $1 million and $30 million. Ultra High Net Worth (UHNW) refers to those with a very high level of financial wealth, typically a net worth of at least $30 million or more. UHNW people typically have diverse and extensive asset portfolios, which may include investments, real estate, valuable art collections, and other high-value assets.
Different organizations, such as financial institutions or consulting firms, may have their own definitions and criteria for classifying individuals as HNW or UHNW.
How to calculate your net worth
To calculate your net worth, you subtract your Passives of your assets.
Assets are all the things you own that have value, such as savings, investments, your home, and your vehicles. Don’t forget to include any significant artwork or jewelry.
Liabilities are your debts, including mortgages, credit card balances, and loans of any kind.
Learn more: Blackrock CEO says art is a ‘serious asset class’ – here’s how you can own a piece of Pablo Picasso
1. Identify your strengths
The first step in calculating your net worth is to take inventory of your assets. Be sure to include anything of value in your portfolio, including retirement savings accounts such as Roth IRAs or 401(k)s and investments.
You can also include physical items like your car, though you can leave out other things unless they have substantial value like a $5,000 comic book collection, for example.
2. List your liabilities
After sorting through all your assets, it’s time to move on to liabilities.
Start writing down everything you owe money for, from credit card balances to loans. Do not include current monthly expenses, but consider any currently unpaid debt.
Example of calculating your net worth
Now that you’ve taken stock of your assets and liabilities, add up each category. Subtract total liabilities from total assets and you will have an estimate of your net worth.
here is an example: Tom has savings of $25,000, investments of $50,000 and a vehicle worth $10,000. That means he has $85,000 in assets.
He also has a credit card balance of $5,000 and a student loan of $20,000 – liabilities totaling $25,000.
So, Tom’s net worth is $85,000 (assets) minus $25,000 (liabilities), which equals $60,000. Thus, he has a net worth of $60,000.
How to increase your net worth
While younger generations seem particularly struggling with their balance sheets — 41% of Gen Z and 38% of Millennials reported having a net worth of $0 or less — 21% of those close to retirement (respondents aged 59 or more) also admitted the same in the Credit Karma survey.
It’s extremely important to improve your finances and establish a solid nest egg for your golden years, but more than a quarter of respondents said they had nothing saved for retirement.
Calculating your net worth can be the first step towards improving it and your overall financial health. It’s a matter of decreasing your liabilities and increasing your assets.
Start thinking about how to get rid of your obligations, like paying off your debts. If you have many different sources of debt, consider taking out a debt consolidation loan with a lower overall interest rate to simplify your payments.
Also, don’t forget to put some money aside for emergency savings. This can help you avoid denting your net worth with an unexpected expense.
Finally, look for ways to strengthen your assets, such as increasing your income in the stock market – you can even start by investing your spare change.
With files by Doug Whiteman
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.