How to Compute Your Net Worth

What do they mean by net worth? Does it really matter if we know what our net worth is? Net worth is what you are worth after you have added and subtracted your assets and liabilities. If you own more than what you owe in taxes and the such, you have a positive net worth.

If you are looking to retire within the next couple of years, you may want to keep track of your net worth so you will know what will be happening from year to year. With the way the economy is, if you do not reevaluate your net worth you will be blown way off track because things are not the same. Net worth gives you some idea of how much money would be left if you changed everything you own into cash to pay off your debts and if you do not have enough, you could be in real trouble. Some examples of what each asset is are things like liquid assets that can be sold in a matter of days, like the bank account certificate or deposit bonds and stocks.

Non-liquidated assets are things that you own that may incur a penalty when sold, like retirement accounts, IRA, 401k and pension plans. There’s also real estate investments as well as the market value of your home. Other ones can be like stock in a company, partnerships, cash, value of life insurance and jewelry, collectibles, cars, etc.

Liabilities are anything you owe to creditors. Immediate liabilities include credit card, car loan, student loans and any bill or debt that must be paid within two years.