Everyone wants to increase their net worth. However, few people know how to calculate it. With a better understanding of how net worth is calculated, you can make better decisions to improve your financial situation. Here are the formulas you need to calculate your net worth so that you can start taking steps to improve it.
What Is The Formula For Net Worth
Net worth is the total value of all a person’s assets minus any liabilities. To calculate your net worth, you need to use a simple formula. The formula is the sum total of all your assets (property, savings, investments, etc.) minus any debts and other liabilities you may have.
Keep in mind that your net worth is just a snapshot of your current financial position as it stands today. The value of some assets, such as property or stocks and bonds, and liabilities, like credit card debt and auto loans, can go up or down over time. So, your net worth will fluctuate over time as well.
You can use our free net worth calculator to track your net worth over time. Just enter your assets and liabilities into the calculator, and it will do the rest.
What Is Net Worth
Net worth is the total value of all a person’s assets minus any liabilities. It can be calculated by adding up the value of all assets and subtracting any debts or other liabilities. This figure fluctuates over time as the value of assets changes and as more debt gets paid off.
What Is An Asset
An asset is anything that has value and can be converted into cash. Common examples of assets include:
- Checking accounts: A checking account is a type of bank account where people can deposit and withdraw money
- Savings accounts: A savings account is a bank account where people put money away to save. Individuals may have a savings account for different reasons, such as retirement or a rainy day fund.
- Stocks: Stocks are units of ownership in a corporation. When you own stock, you have a claim on the corporation’s assets and earnings. Therefore, as the company grows its market capitalization, your stock becomes more valuable.
- Bonds: A bond is a debt investment in which an investor loans money to an entity (typically a corporation or the government) and receives periodic interest payments on the bond. The entity that issues the bond is obligated to pay back the principal plus interest when the bond matures.
- Real estate: Real estate is land, buildings, and any improvements or permanent fixtures on the property.
- Vehicles: Any vehicle you own, such as a car, truck, or motorcycle, can be considered an asset as you can sell it for cash.
- Commodities: Commodities are natural resources that can be bought and sold, such as oil, gold, or silver. This means that if you own any jewelry or other precious metals, they would be considered assets.
- Cash: Cash is any currency that is readily available to make purchases. This could include paper money, coins, or even cryptocurrency.
What Is A Liability
A liability is anything that a person owes money on. Common examples of liabilities include:
- Credit card debt: Credit card debt is one of the most common types of debt. The average American cardholder had $5,668 in credit card debt in Q2 2021. This debt can be challenging to pay off and has a high-interest rate, making it hard to get ahead financially.
- Mortgages: A mortgage is a loan that a person takes out to buy a property. The loan is secured against the value of the property.
- Car loans: A car loan is a loan that a person takes out to buy a car. The loan is usually paid back over time with interest.
- Margin loans: A margin loan is a loan that is extended to an investor to purchase securities. For example, if an investor has a margin account of $100,000 and borrows $50,000 to purchase additional securities, the loan is a margin loan. The interest rate on a margin loan is generally higher than the interest rate on a regular loan because there is more risk involved for the lender. If the value of the securities in the account falls below a certain level, the investor will be required to provide additional funds or securities to the account. This is known as a margin call.
- Medical bills: Medical bills can be a significant financial burden for many people. According to the Kaiser Family Foundation report, about 20% of working Americans struggle to pay their medical bills.
- Student loans: Student loans are loans that are taken out to pay for educational expenses. The loan is typically paid back over time with interest.
- Personal Loans: A personal loan is a type of loan given to an individual for personal use. An example of a personal loan would be a loan to consolidate debt or start a business.
How To Calculate Net Worth
Net worth is calculated by adding up the value of all assets and subtracting any debts or other liabilities. This figure can fluctuate over time, so it’s important to keep track of it. The best way to do this is by using our net worth calculator.
To use a net worth calculator, simply enter your assets and liabilities into the calculator, and it will do the rest. Keep in mind that the value of some assets, such as property, stocks, and bonds, can go up or down over time. So, your net worth will fluctuate over time as well.
How To Calculate Tangible Net Worth
Your tangible net worth is calculated by subtracting your intangible assets from your total assets. So, the formula would look like this: Tangible Net Worth = Total Assets – Intangible Assets – Total Liabilities.
Intangible assets are assets that you cannot physically touch, like patents, copyrights, royalties, computer software, goodwill, and import quotas.
To calculate your tangible net worth, subtract your intangible assets from your total assets. For example, if you have no debt and a total asset value of $100,000 and you have $10,000 in intangible assets, your tangible net worth would be $90,000.
It’s important to keep track of your tangible net worth because it can be used to secure loans and other financial products. Lenders will often only look at a borrower’s tangible net worth to see if they qualify for a loan.
Tips On How To Increase Your Net Worth
There are a few things you can do to increase your net worth
- You can improve your income: One way to increase your net worth is to work on increasing your income. You can improve your income by getting a promotion at work, starting a side hustle, or investing in real estate.
- Pay down any debts or other liabilities you may have: You can increase your net worth by paying down any debts or other liabilities you may have. This can be done by making extra payments on your debt, negotiating with your creditors, or refinancing your loans. This will lower your debt obligations and decrease some of your fixed expenses.
- You can invest in yourself: You can also increase your net worth by investing in yourself. This can be done by taking courses, attending seminars, or reading books.
- You can save more money: Another way to increase your net worth is to save more money. This can be done by setting up a budget, automating your finances, or investing in a retirement account.
Net Worth Calculator
Your net worth is constantly changing, and nothing is more annoying than manually calculating your financial profile every time you want a look at your net worth picture. Therefore, we’ve created this Net Worth Calculator for you to calculate and track your net worth progress.
Simply enter your assets and liabilities into the calculator, and it will do the rest. Keep in mind that the value of some assets and liabilities go up or down over time. So, your net worth will fluctuate over time as well. So keep coming back to this tool so you can see how you’re progressing.
Key Takeaway
Net worth is calculated by adding up the value of all assets and subtracting any debts or other liabilities. This figure can fluctuate over time, so it’s important to keep track of it. The best way to do this is by using our net worth calculator.
Tangible net worth is calculated by subtracting both your intangible assets and liabilities from your total assets. This figure is important because it can be used to secure loans and other financial products.
You can do a few things to increase your net worth, such as working on increasing your income, paying down debt, investing in yourself, and saving more money.
Finally, if you want to see your net worth, use our net worth calculator to see your current financial status.