Computing Your Net Worth

Computing net worth is the best way to understand your current financial status and plan your financial future. Knowing your net worth is important because it paints the picture of where you are financially, and where you'll be as time moves on. Understanding this is an important part of planning your retirement, and making sure you have enough saved to live comfortably and enjoy it.

Calculating your net worth is simple: add up your assets, then subtract your liabilities. Our assets include all checking, savings, retirement, money market, and other accounts, investments, and property. Liabilities are things like groceries, bills, and other charges requiring monthly payments. Extended liability is payments we must make for a period of years, such as for homes and automobiles.

Computing net worth is basically a mathematical exercise. First, add up all assets; then add up all liabilities. Next: subtract monthly payments from your monthly income and subtract extended payments from your annual income. Lastly, subtract total liabilities from total assets, and you will see your net worth.

You should calculate your net worth at least once each year. The most important reason for computing net worth is to get ideas of your retirement and how to financially enhance it. If you're displeased with your computed net worth numbers, you'll have to re-adjust your budget and spending habits. Try to spend less, and if possible, increase your assets through investment. When your compute your net worth again, you should be pleased with the numbers you see.