Net Worth — How This Calculation Helps Boost Your Financial Plan

Do you know your net worth? This financial calculation can be an excellent point to start a financial plan and also a way to gauge progress on a number of fronts. To help you find your net worth and use this information, here's what you need to know. 

What Is Your Net Worth?

Net worth is, at its heart, the amount of assets you own minus the liabilities (debts) you hold. If your assets are greater than your debts when added up, your net worth is positive. If the opposite is true, the result is negative. The net worth calculation is a snapshot of your overall financial picture at one moment in time. 

How Is Net Worth Calculated?

To find your net worth, start by gathering up the current totals of all your assets. This is easy for things like bank accounts and retirement funds. But it may be tricky for cars, homes, or businesses. To find the current value of these, you generally use the current market value (what the item would sell for). Adding up debts is generally easier, as you simply need to know the current amount owed or payoff. 

Depending on your goals, you may want to leave out certain assets or debts. For instance, if you have a lot saved up for retirement, you might exclude these accounts so they don't throw off your calculation and because you can't access them at the moment. 

What Can Net Worth Tell You?

So, what's the point of this exercise? Net worth helps you see your overall financial picture and measure change. You may compare it to the average net worth of your age group. Or you might realize that your debts are high in relation to the related assets. Or an anxious saver may find that they are actually in better shape than they thought. 

By calculating net worth on a regular basis, you also see changes in tangible terms. Your net worth may turn from negative to positive over time — or vice versa. You may see an increasingly high number, reflecting a more stable financial picture and less leverage. And calculating net worth with different combinations of assets, such as with or without your primary home, identifies weak spots in your financial plan. 

Where Can You Learn More?

Want to know more about using net worth as a planning tool? Start by meeting with a financial planner. They can help you determine your net worth and analyze the results to find the best way to improve it throughout your life. Make an appointment with a business like Libertas Wealth Management today.