What Makes Your Net Worth?
To figure out your net worth, first calculate your assets and liabilities. Your assets are the things you have, such as your house and car, along with any stocks, bonds, or retirement accounts. On the other hand, your liabilities are your debts. You should list each one separately and add the total up. In other words, if you have a positive net worth, you have more money than you owe. However, if you owe more than you have assets, your net worth is negative.
If you have a mortgage or car loan, your debts should be listed as liabilities. For example, if you have a balance on a car loan, you can subtract the balance from the assessed value of the car. That difference is your net worth. If you don’t have any loans or mortgages, you can estimate their values using the Kelley Blue Book. If you’re unsure of the value of your assets, use a conservative figure to avoid underestimating your net worth.
You should also include your home in your net worth calculation. This is because the mortgage money is dead money, since you’re likely to sell it someday. In addition, if you’re planning to pass the house down, avoid using a reverse mortgage or home equity line of credit on it. Both of these types of loans require repayment of the loan balance, plus interest payments. Therefore, you should only include the loan amount in your net worth if you’re planning on passing the house down to your family.
As we’ve mentioned, net worth is the total dollar value of your assets minus your liabilities. It can be negative, or positive, depending on the circumstances. It’s important to note that net worth is a relative term and may fluctuate from day to day. You may have more money than you’d think. If you’re in debt, the amount you owe could be higher than the value of your home today.
Once you’ve determined your net worth, you can begin to work towards maximizing your financial health. Taking a comprehensive approach will help you understand your current debts and assets, as well as make your money work smarter. For instance, if your savings account has stagnant growth and you’re paying a high interest rate on your loan, you should consider paying off the loan sooner. A net worth approach to building wealth also involves liquidating your assets. You should use your net worth to identify the debts and other expenses that aren’t contributing to your wealth.
Keeping track of your net worth should be a regular habit. It will give you an idea of how far you’ve come. And it will prevent you from living a delusional dream. You should be able to see your net worth before you retire, so you can make changes accordingly. It’s never too late to begin a saving or debt repayment plan. When you know your net worth, you can avoid being fooled by deluding yourself about your financial status.
Taking action and planning ahead will increase your net worth. While a good credit score will help you with a home mortgage, you should also pay off other debts. In addition to paying off your student loans, you should also pay off other loans. Once you have a good net worth, you should consider investing in real estate. Your net worth should continue to rise as you save for retirement. But you should always remember to keep a check on your spending habits.
While it may seem overwhelming, everyone has a net worth. For some, this amount is enormous. For others, it’s modest. For younger people, it may be negative. Regardless of your net worth, you should always keep in mind that a low one does not mean that you are not defining your financial future. Saving money and investing in yourself is important if you plan to live happily with it. If you have a large amount of debt, it’s best to start saving right away.
The Federal Reserve Survey of Consumer Finances shows that average net worths for U.S. families are roughly the same, and you can use the figures to gauge your own personal financial health. By paying down your debts and accumulating assets, you’ll be able to build a better net worth and start planning for your retirement. It’s a good idea to track your net worth periodically, so you can make better decisions about your financial future.