Define net worth
Your net worth is quite simply your financial assets (for example, bank and investment accounts) minus your financial liabilities (debts such as student loans and credit-card debt).Net worth does not refer to personal possessions. Your car, clothing, television, computer, and other personal items all have some value, of course. If you need to sell them, you could get something for them on Craigslist or eBay. But the reality is that you're unlikely to accumulate personal items with the expectation of later selling them to finance such personal goals as buying a home, starting a business, retiring, and so forth. After all, these things are investments that decline rapidly in value after purchase and use.
Figure what you own: Financial assets
To calculate your financial assets, access your bank statements and investment account statements, including retirement accounts and any other documentation that can help you. You may have only one or two accounts, and that's fine. Add up all the values of these accounts to find out what you own.It's common for most young adults to be in the early stages of accumulating assets. This book helps you change and improve upon that.
In addition to excluding personal property and possessions because folks don't generally sell those to accomplish their personal and financial goals, you also probably should exclude your home as an asset if you happen to own one. (You can include it if you expect to downsize or to rent in retirement and live off of some of your home's equity.)
One exception to something that isn't generally thought of as a financial asset, which you may or may not want to include in this category. Some people have valuable collections of particular items, be they coins, sports memorabilia, or whatever. You can count such collections as assets, but remember that they're only real assets if you'd be willing to sell them and use the proceeds toward one of your goals.
Determine what you owe: Financial liabilities
Most people accumulate debts and loans during periods in life when their expenditures exceed their income. You may have student loans, an auto loan, and credit-card debts. Access any statements that document your loans and debts and figure out the grand total of what you owe.Net the difference
After you total your financial assets and your financial liabilities, you can subtract the latter from the former to arrive at your net worth.Don't worry if you have a small or negative net worth (where you have more debt than assets). There's no point wringing your hands over the results — you can't change history. And, it doesn't matter how you compare with your peers even if we can accurately define exactly who your peers are. This isn't a competition or test.
But you can change the direction of your finances in the future and boost your net worth surprisingly fast to work toward accomplishing your personal goals.
