Net worth is a measure of your financial health because it basically says what you would have left over if you sold all of your assets to pay all of your liabilities. Therefore it is highly advised that every financial decision or action you make should be aimed at increasing your net worth. This means either increasing assets, or decreasing liabilities. Calculating your net worth from time to time, hence, is the best way to measure and track your financial well-being too.
Calculating your net worth simply involves subtracting your liabilities from your assets. If you have more assets than liabilities, you have a positive net worth. Conversely, if you have more liabilities than assets, you have a negative net worth. Another way to look at what your net worth stands for is the difference between what you own and what you owe.
You can create your own net worth worksheet using popular computer programs such as Microsoft Word or Microsoft Excel. These programs can also perform the mathematical aspects of the calculation, thereby reducing the possibility of any math errors. There are a lot of net worth calculators and software that can help you calculate your net worth, as well as online calculators too. But to get the most out of the numbers you really should be able to calculate net worth on your own. After all, calculating your net worth really isn’t all that hard. It just takes a bit of time, some scratch paper, and a calculator.
Below are also some commonly used terms to help you identify which is which:
Assets – cash, real estate and personal property.
Cash Equivalent Assets – bank accounts and treasury bills.
Financial Statement – balance sheets, income statements, and cash flow statements.
Illiquid Asset – houses and antiques and other collectibles.
Investments – stocks, bonds, and real estate.
Liquid Asset – stocks, money market instruments, and government bonds.
Personal Property – boats, cars, collectibles, furniture and jewelry.
Real Property – houses, barns and detached garages.
Secured Liabilities – a home mortgage is the best example
Unsecured Liabilities – credit card debt, medical bills, and utility bills.