How to Calculate Your Financial Net Worth?

What is your financial net worth? Your financial net worth is your net financial position or how much you are worth in terms of assets and liabilities. It is a good value which you can use to measure your financial progress each year. But how do you calculate it? I tried to ask around and surprisingly, most of my friends do not have a clear idea on how one should calculate one’s financial net worth. That is when I decided to take things into my own hand and conduct my own research.

Here is the simple way to calculate your financial net worth based on my research.

1. List out all your current assets, beginning with the largest assets such as your real estate properties, cars or factories. Group them under a category called “major assets” and place it into a Microsoft Excel spreadsheet or write it down somewhere. Next, evaluate the market value of these assets but be realistic when valuing them. Overvaluing an asset might look good for your spreadsheet but will not do you any justice when it comes to honest net worth calculation. For example, don’t evaluate a 10-year-old car at $20k when the actual market value is only $5k.
2. List out your other assets which are more liquid such as funds, stocks, bonds and whatever amount of money you have in your bank accounts. These are the assets which you can easily dispose of when there’s an emergency. You can also get their actual value pretty easily. Group them up and place under “liquid assets” inside the spreadsheet which you have used just now. The total value of this category should take into consideration the taxes involved in the transactions.
3. Next, list down all your valuable items or smaller assets which you can sell for money such as your branded watches, bags, computers, home appliances, jewelleries and others. Group all of them under a category called “other assets” and evaluate the value honestly.
4. Total up everything in the asset category and you will get the total value of your assets.
5. List down all your liabilities starting with the largest ones such as housing loans and car loans. Place them under a category called “major liabilities”. Evaluate them based on the outstanding amount and not the original amount. If you have paid 10k of your 20k car loan in the past, your outstanding car loan should be only 10k.
6. Next, list down all the other liabilities which you have such as student loans, credit card bills, utility bills, and any other debts or smaller loans which you currently have. Group them under “minor liabilities”. Again, evaluate them based on their outstanding amount.
7. Finally, subtract the total value of your liabilities from the total value of your assets and you will get your total financial net worth.

The final figure might not look good and it might actually be negative but all is not lost. The objective here is to know your current financial position and also plan the steps required to improve it. Always remember to do this simple process every year and study your progress. Hopefully in a few years time, your financial net worth will start to show positive signs.