Is calculating your net worth complicated for you? Let me simplify it for you! You can calculate your net worth by adding up all your assets and subtracting your liabilities. Your net worth gives you a quick snapshot of your financial health.
If you want to retire early, knowing your net worth can help you see if your wealth is growing in the right direction. Tracking your net worth over time shows the progress you’re making towards financial goals, like paying off debt, saving for emergencies, or becoming financially independent.
Paying off debt will reflect positively in your net worth. Saving for an emergency fund will increase it. If your investments grow, so does your net worth. Essentially, your net worth is your assets minus your liabilities.
It’s important to note that your net worth is not about your income. It only considers the part of your income that you save, invest, or use to pay off debt. If you spend most of your income, increasing your net worth is tough. To boost your net worth, you need to widen the gap between what you earn and what you spend.
To calculate your net worth, add up all your assets and subtract all your liabilities. It’s helpful to put a date on your net worth calculation to track your financial health over time. You can check your net worth yearly, quarterly, or monthly, depending on your preference. Personally, I calculate mine every quarter. This helps me see changes over time and motivates me to spend less, save more, and invest.
When tracking your net worth, remember that your house is both an asset and a liability. For example, if your house is worth $200,000 and you have a $150,000 mortgage, you add $200,000 to your assets and $150,000 to your liabilities. The same goes for your car. If your car is worth $15,000 and you have a $5,000 loan, add the car’s value to your assets and the loan to your liabilities. The purchase price of the car doesn’t matter—only its current value does.
Don’t tie your personal value to your net worth. It’s just a number and not the ultimate measure of financial success. For instance, my net worth was very negative when I graduated in 2017. After a mini-retirement to South America, it dropped even further, but I didn’t mind because it was a once-in-a-lifetime experience. I knew my earning potential was high once I entered the job market. By 2018, my net worth turned positive, which made me happy. Even if I had significant student debt and a negative net worth, it would be okay.
The key is to check your growth and see improvement year after year. Currently, I have a positive net worth in the low five digits, and I’m content with it. I don’t own a house or a car (I lease one), and I haven’t paid off my student loan yet. Don’t panic if your net worth is negative; I experienced that until recently. Focus on increasing your numbers by paying off debt or increasing your assets. Reducing your spending will help with this. If you master your spending, you can be sure to increase your net worth.
Another great way to boost your net worth is by increasing your income. Tracking your net worth is a simple way to see where you’ve been and where you’re going in terms of financial health. I encourage you to calculate your net worth today. Are you tracking your net worth?