Personal Net Worth – How To Calculate Your Personal Net Worth

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Your personal net worth is one of the most important financial numbers you should know.

Your personal net worth serves you well on your financial journey and should not be neglected.

The only time you may think of net worth is when reading about Warren Buffet, Jeff Bezos, Jay-Z, or Aliko Dangote.

Sounds like this is about the super rich and does not include us right? Not even close.

Let’s dive in to what your personal net worth is and why it matters.

Personal Net Worth

You have a net worth whether you know it or not.

Your net worth is a measure of your financial health and is calculated by adding up everything you own (assets) and subtracting that from the total of everything you owe (liabilities).

Net Worth = Assets - Liabilities

An asset is anything of monetary value that you own and can include your house, car, money invested or stake in a business.

Liabilities are what you owe and these are mainly debts such as loans, car finance and mortgage.

In the UK, it has been found that pension pots make up over 40% of household net worth.

If you’ve been putting off pensions now is the time to think twice!

A Financial Snapshot

Your net worth is a snapshot of your financial position at the time when you calculate it.

This will change each time that you do the calculation so it is worth doing this as frequently as needed. 

For me, I’d say your net worth is like getting a car service done.

It’s looking at how financially healthy you actually are by taking into consideration all of your assets and liabilities. 

Unlike a budget which is about at your cash flow and money allocation, your net worth is not ‘alive’.

Your Net Worth And Your Age

Earlier on in your financial journey it’s common to find yourself with a low or even negative net worth.

Most of us in our younger age start off with student loans, credit card debts and no income bearing assets.

All this means a negative net worth.

So if in your twenties I’d say the aim is to begin your wealth building journey.

Don’t be put off or discouraged by the negative or low net worth.

As you get older you’ll likely see your net worth increase over time, if do so with intentionality.

The general rule is to aim for half your income invested by thirty.

Then aim to have twice your salary invested by fourty.

As you cross over into the fifties the aim is to have four times your annual salary.

Then six times your annual salary by the age of sixty.

These are based on many financial gurus but to me these seem to have no basis.

However, they aren’t bad goals to aim for either as an increase in your net worth means more wealth.

How To Calculate Your Net Worth

What gets measured get managed.

Remember the point I made about intentionality.

List all your assets that you own plus the financial value of those assets, then add up the total amount for your total asset value.

Again, assets include intangible assets like savings and investment and tangible assets like cars, houses and jewellery

Do the same with your liabilities that you owe and add up the total amount.

Again, liabilities are monies owed including consumer debts, mortgages and other debts.

The value of your total assets minus the value of your total liabilities is your net worth.

These amounts are the values at the time when you do your calculations.

It may not be possible to calculate everything to the penny, so with some calculations some estimations may be needed.

We have created a budgeting spreadsheet called the Ultimate Money Plan designed to empower you to take control of your finances and start to command your money according to your plans.

It includes a Net Worth calculator.

The Impact of Your Net Worth On Your Finances

Well, every financial decision you make either positively or negatively impacts your net worth.

A new car on finance will increase your liabilities whilst investing money will increase your assets. 

Should you choose to get a car on finance, the car would be an asset and the finance (loan) would be a liability.

The trouble with a car is it loses its value therefore being what’s known as a depreciating asset.

If you buy a house, the physical house would be an asset and the mortgage would be a liability.

The difference (usually) is that the house will not lose value in a normal market whilst the mortgage is being paid off.

In most cases the house value would increase over time.

How To Increase Your Net Worth

There are two ways to increase your net worth. Increase assets and/or decrease liabilities.

Broadly speaking, it’s usually better to pay off debts as the cost of borrowing can be much more than the rate of returns you would get from investments.

Particularly consumers debts such as credit cards and buy now pay later deals.

If you invested in the stock market and made 10% gains in one year, your 29% credit card interest would grow at a faster pace than your investments.

When Should I Check My Personal Net Worth?

In the same way that you service your car at certain intervals of time and mileage done, you also want to service your financial status frequently.

We calculate our net worth when we do our budget, which is every month.

This allows us to track our progress on building wealth.

A negative net worth does NOT mean that you’re in a bad place.

All it means is that your debts outweigh your assets at the time of your calculation. Similar to your car servicing, there will be things you’ll want to look at and change.

On the other hand a positive number is good as it shows your assets (what makes you money) outweigh your liabilities (what takes money from you).

Take Action

Calculate your personal net worth today.

Check out the Ultimate Money Plan budgeting spreadsheet that includes a Net Worth calculator for you.

Share this with your friend, family, or partner and encourage them to calculate their net worth too.

Download our Free Financial Health Check to give you a good overview of your financial health.

Let us know how you’re getting along by getting in touch with us, we’d love to hear from you

Knowledge is powerless without action

So take action, and take care

Thando