What does "net worth" mean?
If you asked 100 different people what their net worth is, 95 of them would probably not be able to give you an accurate figure. "Net worth" is the amount by which the total value of your assets exceeds the total amount of your liabilities.
Net worth is an indicator of your financial "health". It tells lenders whether you can pay back the loan you're applying for. Financial planners use it as the basis for your retirement plan. If you're going through a divorce, you'll have to provide your soon-to-be-ex's lawyers with a personal net worth statement as part of the settlement negotiations.
How to Determine the Value of Your Assets
Your assets include all items which you own an interest in and all debts which are owed to you which have an actual dollar value, including:
- Cash in bank accounts
- Stocks and stock options, bonds, other securities
- Life insurance cash value
- Real estate
- Vehicles
- Loans owing to you from others
- Retirement savings plans and annuities
- Business interests
- Collections and collectibles of value (such as art, jewelry, coins, stamps, antiques, etc)
- Household furniture and goods.
When calculating the value of your assets, use the current market value - in other words, what it's worth today, not what it was worth when you bought it or what it might be worth at some point in the future.
Adding Up the Total of Your Liabilities
Your liabilities are all of the debts you owe or may be responsible for paying, which includes:
- Mortgages
- Bank loans and personal loans (from family or friends)
- Unpaid bills
- Monthly lease or rental payments
- Taxes
- Credit card balances
- Any obligations you have guaranteed for others as a guarantor, endorser, or co-signer.
You can use this simple net worth calculator from the Ontario Securities Commission to help you determine what your current net worth is. There are a number of similar tools available online.
How You Can Improve Your Net Worth
If you're not happy with the final figure you arrived at, DON'T PANIC. There are ways to improve that bottom line. The simplest method is: Increase your income and reduce your expenses.
If you're not sure how to do that, get some expert help. There are many free resources available online with helpful information, downloadable tools and resources to help you get your finances on track, so that the next time you calculate your net worth you'll be happier with the result.
Image by Steve Buissinne from Pixabay
