Have you heard an individual worth a billion dollar and you wondered how much you are worth after several years of rendering your services in your chosen career? You could be a student or an employee with few years of experience but ponder for several hours over your actual net worth each time you come across a question demanding it, maybe while filling an application form for a scholarship.
If you are a financially conscious individual, you need to know your personal net worth at some point of your life, this would help you track your financial progress in life – or how well your worth is eroding as you grow older – after making any financial decision or achieving a very important life milestone.
Interestingly, you do not need to own a private jet before you know how much you are worth. It is important for everyone and simple to calculate. Just gather all you own and all you owe and you’re good.
There is certainly no gainsaying that a good financial decision, implemented appropriately would increase your net worth, this is provided all things being equal as the economists would say. However, an abysmal decision and any wrongly-executed plan relating to your finances would plunge your worth and most likely make you less valuable.
Saving your money in a bank where the interest rate on savings is far lower than the national inflation rate would increase your chances of dampening your financial worth. It does not even get better when you spend on regular items with no hope of financial gain. Rather than these, you could buy a landed property somewhere with a high tendency to develop swiftly as that would mean allocation of cash to a fixed asset that would appreciate in value over time.
Besides this, one could deploy strategies to reduce debts or other forms of financial burden to grow net worth, even with marginal increase or stagnancy in asset value.
Apparently, your financial worth often called net worth measures the true worth of individuals and businesses. As an individual, your net worth is your value in financial terms and creates a picture of your financial health. High net worth is an indication of good financial strength, while a low or negative net worth will refer to weaker financial strength, thereby affecting the individual’s or the company’s ability to raise funds to run the business.
In simple terms, your net worth is the monetary value of everything you own called assets minus everything you owe called liabilities. So, to set up a personal net worth statement for yourself, you would need to list your assets and sum up estimates of the current value of each. Do the same for liabilities and deduct the total from the value of the overall assets.
Assets are all financial and non-financial resources that can easily be converted to cash and they include cash, the amount in your bank or retirement accounts, the value of your investment which include all securities in your portfolio, the market value of your cars, fixed assets such as houses, buildings, land, equipment or machinery. Assets also include jewellery, art, furniture, cash value of any insurance policies and intangible assets.
However, liabilities are present financial obligations that deplete resources and must be settled over time either through cash payment, goods delivery, or services. Liabilities include mortgage and all forms of loans and interest payments, payables for goods supplied or services rendered, taxes, bills payable and other expenses.
Although the approach to calculating your personal net worth may look seamless by simply deducting liabilities from assets, classifying certain items into either assets or liabilities and estimating their current value could be challenging. These we may likely address in our subsequent articles.
