What Net Worth means?

July 22, 2022

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As a metric to calculate how rich an individual is, net worth is widely stated.

Contents

Different types of assets includes Example of Liabilities Types of Net Worth Business Net Worth Individual Net Worth Government Net Worth Country’s Net Worth Difference between Personal and Business Net Worth How do you Calculate Your Net Worth?1. List out Largest Assets 2. Statements of Liquid Assets 3. Personal Valuable Items 4. Add them all 5. Calculate Your Liabilities- Outstanding Liabilities 6. Calculate Personal Liabilities 7. Add all Liabilities 8. Calculate Your Net Worth 9. Repeat at least once a year Conclusion

Net worth is the amount of all financial and non-financial assets minus a person’s or an organization’s liabilities.

An aspect of this calculation is all that can be valued: real estate, metals, factories, land, securities, bonds, patents, etc.

Loans and fees that the person or organization has to pay back will include liabilities.

Hence, Total Assets – Total Liabilities = Net Worth

Different types of assets includes

Cash and cash equivalents
Real estate
Checkings & Savings account
Inventory
Investments
Jewellery
Stocks and bonds
PPE (Property, Plant, and Equipment)
Vehicles
Cash-valued life insurance
Retirement accounts
Furniture, Office equipment
Patents (intangible asset)

These were some of the examples of Tangible assets, however, assets also include different types of Intangible assets.

Example of Liabilities

Mortgage debt
Taxes owed
Bank debt or Loans (Car loan, Student loan)
Credit card payments
Due payments
Any other debt you owe

Types of Net Worth

Business Net Worth

Net worth is often referred to as book value or shareholder’s equity in the corporate world. A net worth statement is another term for a balance sheet. The difference between the value of a company’s total assets and liabilities is the value of its equity.

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Individual Net Worth

The amount by which your assets exceed your liabilities is your personal net worth, and it is an accurate representation of your financial health.

Government Net Worth

It can also be calculated of the Government. To give a fair view of government operating expenditures, most governments use an accrual-based accounting system. Cash accounting may be used by other governments to better forecast future budgetary occurrences.

Country’s Net Worth

The total net worth of all companies and persons residing in a nation, plus the government’s net worth, is considered as the country’s net worth.

Difference between Personal and Business Net Worth

Both values represent the total value of all assets minus the total value of all liabilities. The value of assets is based on their current market value rather than their original acquisition costs for assessing individual net worth.

The value of assets is determined by their initial purchase prices rather than their current market value when calculating a company’s net worth.

How do you Calculate Your Net Worth?

1. List out Largest Assets

Begin by making a list of your most valuable belongings. This could include the value of all the properties including the ones they are living in, any land, ancestral belongings or personal vehicles such as 2-wheeler, 4-wheeler for most people.

2. Statements of Liquid Assets

After that, obtain your most recent statements for your most liquid investments. Checking and savings accounts, cash, FDs, and other investments such as brokerage accounts and retirement accounts are examples of these assets.

3. Personal Valuable Items

Finally, make a list of any additional valuable personal things. Valuable jewellery, coin collections, musical instruments, heirlooms, a unique wine collection, and so on are examples. You don’t need to include everything, but you should try to include goods worth $100 or more.

4. Add them all

Now combine all of the assets you mentioned in the first three steps. This figure indicates the entire value of your assets.

5. Calculate Your Liabilities- Outstanding Liabilities

Start with the most significant outstanding debts, such as the balance on your house or vehicle loans. Make a list of these loans, together with their current amounts.

6. Calculate Personal Liabilities

Next, make a list of all of your personal liabilities, such as credit card balances, school loans, and any other debt you may have.

7. Add all Liabilities

Add the balances of all of the liabilities listed above. This figure indicates your overall debts.

8. Calculate Your Net Worth

Simply subtract your entire debts from your total assets to get at your net worth. It makes no difference how big or tiny the number is for this exercise. It makes no difference whether the number is negative. Your net worth is only a starting point against which you may assess yourself in the future.

9. Repeat at least once a year

At least once a year, repeat the process and compare the results to the prior year’s figure. You can tell if you’re making progress or falling further behind on your goals by comparing the two. If you’ve started an ambitious saving or debt payback strategy, you may wish to reassess your net worth 4-5 times a year.

Also, you can calculate your Net worth right now, here is a great net worth calculator to begin with.

Conclusion

Net worth is the amount of money you’d have if you sell all of your existing assets to pay off all of your debts. Keeping this in mind, every financial decision you make should be geared at growing your personal net worth. You may do so by either accumulating new assets or reducing down your debts.