Do you know your net worth? If you don’t, you should.
Download your free net worth tracker here to track your own net worth each month!
First, you may be wondering what is net worth in the first place?
Your net worth is really the difference between what you own (your assets) and what you owe (your liabilities). Basically, it is a realistic picture of your current financial health because it says what you would have left over if you sold all of your assets to pay all of your liabilities.
So, why is your net worth important?
Not only does it quickly assess your financial health in one number, it allows you to track your financial progress over time. It tells you where you stand financially and will reveal if you have too much debt or if you have too much of any one asset.
To achieve financial independence, every move you make should be focused at INCREASING your net worth. This means either increasing assets, or decreasing liabilities. Knowing your net worth helps you get focused with your finances. You can know which specific areas you need to work on – do you have forgotten investments, or worse, forgotten debts? Understanding your net worth is a great way to help you plan for your financial goals. That’s why net worth is well worth calculating.
What’s the formula to get your net worth?
Your Assets – Your Liabilities = Your Net Worth
So, if you have PHP 100,000 in assets and PHP 100,000 in liabilities, that means your net worth is PHP 0.
If you have PHP 10,000 in assets and PHP 50,000 in liabilities, that means that your net worth is -PHP 40,000. Yes, you can definitely have a negative net worth.
STEP 1: Make a list of all of your assets. (What you own)
- Total cash (savings account, checking account, time deposit accounts & cash on hand)
- Total investments (your stocks, your bonds, your mutual funds and your UITFs)
- Other important assets (your whole, term or VUL insurance & privately-owned businesses)
- Personal Property (vehicles, jewelry, furniture you own and electronic equipment & gadgets)
- Receivables (money that people owe you)
- Real estate
STEP 2: Make a list of all of your debts or liabilities (What you owe)
- Total loans (housing, auto or personal loans)
- Consumer debt (credit card debt)
- Other payables (life insurance payables & money you owe from people)
STEP 3: Subtract.
Take your total assets and subtract from that your total debt. The resulting number is your net worth.
How can you change your net worth to positive if it’s negative?
If your net worth is negative, it means that you haven’t earned enough money to pay for your debt or it can be due to over borrowing. Usually, debt is what stops people from building wealth. If you can eliminate your debt and manage to have more assets, your net worth will be positive.
How can I increase my net worth?
There are two things you can do: increase your assets and decrease the amount of debt you have. You can increase your net worth by finding ways to make more money, paying off your debts, consistently saving and investing money into assets, and reducing your spending.
PS: Here’s a spreadsheet to help you compute your net worth if you’re looking to get started.
So, have you figured out your net worth yet? Keeping track of your net worth holds you accountable and keeps you on track with your money goals.Tell me all about it by commenting below! I’d love to hear from you.