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Glossary

Net Worth Definition


Definition: Net worth is the amount one’s assets exceed liabilities. Most often, it assesses the worth of an individual or business. When one steadily increases their net worth, they are in good financial health. However, when losses are steadily reports, the entity’s financial health is poor.


A lot of us, day by day, wonder just what our worth is in the financial world. Not many know how to access this information, while others just don’t feel the need to bother. But what about those of us who are wondering and want to know?

With many networth softwares and calculators out there, you can easily find your net worth virtually anywhere. This is easy, yes, but what’s the point if you don’t understand just how you were given that golden number. Whether it’s $1,000 to $1,000,000, understanding how to calculate it is important.

What Determines Your Net Worth?

The entire makeup of your net worth is composed of your assets and liabilities. This sounds easy to calculate, sure, but what exactly are your assets and liabilities?

Assets

To calculate your net worth efficiently, you’d need to get all of your assets in order and listed. Your assets are basically everything that you own that is of financial worth. It also includes any savings or checking accounts you may have. A few more examples are as follows:

  • Checking account funds
  • Savings account funds
  • Retirement funds
  • Market value of your home/apartment
  • Market value of any vehicles you own
  • Appraisable/notable items (jewelry, artwork, furniture, collectables, etc.)
  • Cash value of insurance policies
  • Business interest

Liabilities

Your liabilities, also known as your debts or what you owe, are also needed to correctly identify your total net worth. Basic examples of what these numbers consist of are the following:

  • Credit card balances
  • Car loans
  • Mortgage loans
  • Outstanding medical bills
  • Personal loans
  • Student loans

How to Calculate Your Personal Net Worth

Calculating your net worth is fairly easy, just total your liabilities and assets then subtract your liabilities from that amount:

Assets: $501,690.00 – Liabilities: $19,712.00 = Net Worth: $481,978

Being precise and specific helps get the most realistic, actual number. It is possible to have a negative net worth. This means that you owe more than you have, making the value below 0. Having a negative net worth means that you need to settle any debts or money you owe to increase it.

But how can you raise your net worth? Since calculating it is a good way to find out your financial value and standing, you can sort out any debts and/or make financial changes to increase it. Although it doesn’t calculate any yearly income, it clearly states what you have and what you owe. The process of totalling your assets and liabilities alone can tell you a lot.

Settling your debts can increase your net worth, and so can investments when you’ve gotten a good amount of return as a result. Investing in things such as DiversyFund’scrowdfunding real estate opportunities offers returns that could lower your debt while increase your assets. Consider this option the next time you calculate your net worth.