Net Worth: How to Calculate It and Why It Matters!
People generally associate net worth with HNIs, not the average Joe. But that does not mean that you should ignore looking up your net worth because it determines your financial condition. Calculate your net worth because it shows your financial standing. It provides an idea of where you are in the financial journey and what you should do to achieve your goals.
What is net worth?
Net worth is the personal balance sheet listing the assets you will own after paying off your debts. A positive net worth means you own more than what you owe. It means you are on the right track for acquiring wealth. Conversely, a negative net worth suggests that you must radically change your financial life. You can calculate your net worth using a net worth calculator online.
What is a net worth calculator?
Calculating your net worth is easy with an online net worth calculator. Enter your assets and liabilities, and the online calculator will display the results within seconds. The calculator aids you in making changes to your mutual fund investment portfolio based on your financial objectives. These calculators help you deduce your liquid net worth. Liquid net worth is the portion of your net worth easily convertible into cash. Liquid net worth helps in setting up cash reserves.
How to calculate net worth?
Here is how you calculate your net worth using a net worth calculator:
- Enter the assets owned:
Make a conservative estimate of your assets by entering your bank balance, equity investments, bonds, property, and mutual fund investments.
- Enter your debts:
Enter how much you need to repay on home loans, personal loans, credit card loans, and remaining premiums.
- Calculate the difference:
The difference between the assets and debts is your current financial net worth. You may have a negative net worth because of loans when you are young. But there are some steps towards a positive net worth.
How to increase net worth?
Here is some guidance to improve your net worth:
Repay your debts:
Revisit your loans and check if you can change the terms and conditions. Verify if you can pay a higher EMI or prepay the debt to save money.
Increase your savings:
Keep a check on your expenses. Analysing your spending can help in identifying unnecessary spending and taking steps to curb them. A little self-control will help in increasing your savings and ultimately increase your net worth. You can save money by reducing your expenditure and making smart investment choices.
Make smarter investment choices:
Regularly deposing your money in the bank is not a bright idea. Diversify your investments in a wide range of assets like property, debt mutual funds, and equity funds. Diversifying ensures that you are protected against risks if any asset underperforms. Contact a financial planner or an expert if you don’t know how to diversify your investments.
Why is it necessary to calculate net worth?
Calculate your net worth at least once a year to evaluate your financial condition. A high net worth ensures that you are financially secure. You can live on your terms without worrying about how every decision affects your finances. So, what are you waiting for? Use an online net worth calculator as soon as possible!