How do I compute my net worth?
How much am I really worth? This is a question that has run through most of our minds at one time or another. However, if you aren't an accountant or mathematician, it may seem like an impossible number to figure out. The good news is that, using a simple step format, you can compute your net worth in no time at all.
Step 1: Gather the necessary documents.
You will need to gather certain documents together in order to have all the information you will need to tackle your net worth calculation. This information is not much different than the information that you would normally gather in anticipation of applying for a home loan, preparing your taxes or getting a property insurance policy. Here's what you'll need the most recent version of:
- Bank statements from all checking and savings accounts;
- Statements from your securities broker for all securities owned including retirement accounts;
- Mortgage statements and lines of credit;
- Credit card statements;
- Student loan statements;
- Loan statements for cars, boats and other personal property
In addition, you will need to have a pretty good idea of the current market value of the following things you own: real estate, stocks and bonds, jewelry, art & other collectibles, cars, computers, furniture and other major household items, as well as any other substantial personal assets. Current market values can be obtained via a call to your local real estate agent, the stock market and classified ad pages in your newspaper, or qualified appraisers. If you own your own business or hold an interest in a partnership or trust, the current values of these will also need to be gathered.
Step 2: Add together all of your assets.
Your "assets" are items and property that you own or hold title to. They include:
- Current balances in your bank accounts;
- Current market value of any real estate you own;
- Current market value of stocks, bonds & other securities you own;
- Current market value of certain personal articles such as jewelry, art & other collectibles, cars, computers, furniture and other major household items, and any other miscellaneous personal items;
- Amounts owed to you by others (personal loans)
- Current cash value of life insurance policies;
- Current market value of RRSPs and self-employed retirement plans;
- Current market value of vested equity in company retirement accounts;
- Current market value of business interests
Step 3: Add together all of your liabilities.
Your "liabilities" are the debts that you owe and are many times connected to the acquisition or leveraging of your assets. They can include:
- Amounts owed on real estate you own;
- Amount owed on credit cards, lines of credit, etc...;
- Amounts owed on student loans;
- Amounts owed to others (personal loans);
- Business loans that you have personally guaranteed;
Step 4: Subtract your liabilities from your assets.
Almost done Ė this is the easy part. Take the total of all of your assets and subtract the total of all of your liabilities. The result is your net worth.
Hopefully, once you've done the calculation, you will arrive at a positive number, which means that your assets exceed your debts and you have a positive net worth. However, if you end up with a negative number, it may indicate that your debts exceed your assets and that you have a negative net worth. If the net worth you arrive at differs substantially from the "gut feeling" you have about your financial position, take the time to carefully review your calculation -- it may be that you simply made a calculation error or overlooked some assets that you hold.
Evaluating your outcome
If you ended up with a positive net worth, congratulations! You've probably made some good investment and/or money management decisions in your past. However, keep in mind that your net worth is an ever-changing number that reacts to economic conditions, as well as actions taken by you. It makes sense to periodically revisit this net worth calculation and make the necessary adjustments to ensure that you stay on the right financial track.
If you arrived at a negative net worth, now may be the time to evaluate your holdings and debts to decide what can be done to correct this situation. Are you holding assets that are worth less than you owe on them? Is your consumer debt a large portion of your liabilities? There are many different reasons why you may show a negative net worth, many of which can be corrected to get your financial health restored.
Calculating and understanding how your net worth reflects your current financial position can help you make decisions regarding the effectiveness of your investment and money management strategies. If you need additional assistance during the process of determining your net worth or deciding what actions you can take to improve it, please contact the office for additional guidance.
The information presented in this document is of a general nature only and should not be relied upon to replace professional advice. Before acting on this information, talk with a professional advisor as laws and regulations are constantly changing. Readers accept full responsibility; no document found here is a substitute for a consultation.