How to Compute Your Net Worth

A person's net worth is basically their new assets less their net liabilities. This may also be called a person's net wealth. To determine a net worth or wealth is fairly simple.

A form for calculating this can be obtained at a bank or online. In order to complete the information, you will need a list of all the debts you have and a list of all the things you own. A person's assets include such things as the balance in a checking account, homes, automobiles, boats, second homes, the cash value in a life insurance policy, art work, and investment accounts. Assets are items that can be converted into cash. A person's liabilities include what is owned against any of the assets, such as a mortgage on your home or balance on boat or airplane. This also includes the balance owed on any unsecured debt. That might include balances on revolving debt, such as department stores or gas credit cards.

As an example of how net worth works, if you have assets totaling $250,000 and your liabilities total $160,000, your net worth would be $90,000. On the other hand, if your assets total $160,000 and your liabilities total $250,000, your net worth would be a negative $90,000.

It is important to supervise your net worth on an annual basis. This allows you to manage your spending and maintain control of your overall financial status. Calculating your net worth is a way of tracking the progress of your financial well being, from year to year. When a person applies for a loan at a financial institution, this is information that is used. It is important to know ahead of time what will be asked from that institution and how it affect your borrowing power.