Discover your net worth and what it means to your financial health.
Your net worth signifies how much wealth you have and it also measures your financial situation. If your net worth is high, then chances are you’re in good financial health. If your net worth is low, then you have work to do. But that’s okay because you can always improve your net worth with some better money management techniques.
Before we go any further let’s test your skills on this subject.
KOFE Break!
Test your know-how before you start to see how much help you need. Can you skim this section or do you need to take some time on this topic?
What is the market value of something?
A. Original purchase price x inflation
B. Purchase price – amount still owed
C. Average sale price on eBay
D. Whatever it’s currently worth
How is net worth calculated?
A. Assets – liabilities
B. Credit score x income
C. Personal marketability / laziness
D. Income – debt
How to calculate your net worth
Calculating your net worth is easy. Simply subtract the total value of your debt load from the market value of any significant assets that you hold. Significant assets include
- Money in the bank
- Stocks and bonds
- Mutual funds
- Retirement accounts
- Real estate
- Automobiles
- Fine art and antiques
For example, if your assets total $75,000 and your total debt is $25,000 then your net worth would be $50,000. Use our net worth worksheet to calculatre your worth.
Determining market value
Market value is what your assets are currently worth if you were selling them today. For example, cars and other vehicles almost always lose value over time. Conversely, homes or other property typically increases over time in a stable economy.
Understanding negative worth
Don’t be alarmed if you have negative net worth. Following the real estate market collapse in 2008, many consumers saw their net worth plummet because home values decreased below the amounts still owed on the mortgages.
Since then the market has improved, hopefully, your net worth improved along with it. If not, this still does not mean you’re in financial distress. If you pay off your credit cards or have low balances on them, have a balanced budget and save consistently, your financial wellbeing is considered healthy – even if you have a negative net worth.
Improving your net worth
Your net worth constantly changes depending on current market values, assets and debt. Keeping it positive should be a goal. Pay down your debts, increase savings and educate yourself on financial issues with KOFE.
Just doing that will keep you moving in a positive direction.
