How to Count All Your Beans
 

Your net worth is a measure of your financial situation. Simply put it is what you own minus what you owe (assets - liabilities). This is the most important criterion in determining wealth. When applying for a loan, banks will ask you for various pieces of information from which they determine your credit worthiness as part of the approval process. It's good to have an idea of your net worth before you ever need to so you won't be surprised (or amused or worried) if you need to know at some point.

To calculate your assets, add up all your cash, money owed to you (that you are likely to collect), stocks, bonds, and the value of real estate, automobiles and personal belongings that you own. Use fair market value regardless of what you originally paid, and whether you owe money on any of those items. Your debts have no bearing when calculating the value of your assets. To keep it simple you can ignore the value of your personal belongings. In the larger scheme of things they should not make up a large portion of your assets.

Then tally your debts or liabilities. Total your outstanding loan balances, money you still owe on your home or car, and the like. Your net worth is simply assets minus liabilities. Hopefully you have a positive net worth. If your net worth is less than zero, you owe more than you have. Net worth is not an exact number since the value of many of its components is estimated. But it is an indication of where you are financially. Use Worksheet A (shown in Figure 3) to calculate yours.

You’ll also notice on the worksheet that there is a column labeled “Monthly Payment” for your liabilities. Add up your payments and enter the total at the bottom of the column. This is the bare minimum amount you have to spend to service your debt each month before any other expenses are covered. Update this sheet every three months to track your progress (or more frequently if you prefer).

Figure 3

Back to Table of Contents