April 1, 2020

What is Net worth and how to calculate net worth?

Net worth meaning: Net worth is a man-made concept that is used to quantify the ‘worth’ of an entity. This concept can be used to calculate the value of a company, a person, a sector and in some cases, even a country.

In a nutshell, the networth of any entity is the sum of its assets minus the sum of its liabilities. As is evident, net worth calculator can be used to determine whether this value is positive or negative in value.

A positive net worth signifies that the entity has more assets than liabilities and a negative net worth means that the entity’s liabilities outnumber its assets. This essentially means that the entity is in debt.

How To Calculate Your Net Worth

Simply enter the value of all your assets and liabilities in the tool above and watch the magic happen as it runs your data through our net worth equation!

Here’s how it works, and how you can do it yourself if you want to:

Calculating your net worth is a very basic process but it requires you to devote some time and gather all the information about your current assets and liabilities. For eg, if you own a Hyundai i20 that you purchased 4 years ago, you need to factor in the current value of the vehicle and not the purchase price.

This is because the actual definition of net worth is the amount of money you’d have in hand if you sold all your assets and paid off all liabilities today.

I admit that fetching and organizing this data can be a bit of a chore, especially if you’re in you’re older than 30.

Here’s how to begin:

  1. List your most prominent assets first. For eg, this would include the current market value of your home and any other real estate that you own. This would also include any vehicles that you may own. Ensure that you use the current market value and not the purchase price in all cases.
  2. Next, collate your latest statement for your liquid assets. These include your savings accounts, current accounts, retirement accounts, investment accounts etc
  3. Next, you can list any other items that may be of considerable value. Examples include gold, jewelry, art, heirlooms and more. Try to cover everything that has a current market value of more than Rs. 35,000.
  4. Finally, list down all these assets and add them together. The number that you arrive at represents your total assets.
  5. Now, we’ll try to calculate liabilities. Start with all outstanding debts that you currently have such as your car loans, home loans, and more. List down all these debts along with their outstanding amounts. Note that if you’ve paid off 50% of a 1 crore loan, your liability on that loan is only of Rs. 50 lakh + interest and not the entire amount.
  6. Next, make a list of all your personal liabilities such as an outstanding credit card debt, student loans, money you owe to your friends and more.
  7. Lastly, add up all these numbers to arrive at your total liabilities.
  8. To calculate your current personal net worth, simply subtract your total liabilities from your total assets.

Leave a Reply

Your email address will not be published. Required fields are marked *