Your Guide to Understanding Your Net Worth
Whether you’re a successful business person with an impressive portfolio of investments or if you’re a broke student with a huge student loan to repay, it’s important to be aware of your net worth. This will help you determine what kind of financial situation you’re in and help you make good decisions in terms of planning your finances for the future.
What is Net Worth?
You net worth is simply all of your assets minus all of your debts or liabilities. Assets can include your home, investments, savings accounts, your KiwiSaver balance, your car, and really anything of value that you own. Your liabilities include anything that you owe on your assets or in general, so for example student loans, mortgages, overdraft or credit card balances, and auto loans. It’s a great way to measure your financial health because it gives you an indication of whether or not you’d be able to cover your costs at all and if you’d anything left over if you sold all your assets to cover your debts.
How do You Calculate Your Net Worth?
There are plenty of online Net Worth calculators, but it’s just as easy to work it out yourself and you’ll have a better understanding of your assets and debts. and include your home any rental properties, your car, any motorbike/boat etc., your KiwiSaver balance, your current cheque and savings account balances, and the total value of any investments you have. You don’t have to include anything below the value of your car, but it’s up to you. List them with their values and then add them all together, and this is your total asset value.
Then you need to list your debts and include personal loans, student loans, auto loans, mortgages, credit card balances, overdraft facility balances and any other debt you may have. Once you have added these together this is your liability value.
Next you just need to subtract your total assets from your total debts and the amount remaining is your net worth.
Now what?
If you have a positive balance, you’re doing well with your finances. If you have a negative balance, don’t panic just see it as a warning sign that you will need to improve your financial health at some point. For example, if you’re currently studying and have a student loan, you’re realistically going to have a negative balance until you get a job and start earning. It’s not necessarily a bad thing as long as you are aware and willing to improve it.
How Can I Increase my Net Worth?
As a rule of thumb, any frivolous purchases are going to decrease your net worth. This is why it’s important to think about the bigger picture when splashing out on avoidable expenses. Every time you decrease your debt your net worth will increase, and every time you increase your assets it will increase too. The same applies for increasing debt, but it will decrease your Net Worth. The best way to increase your Net Worth is by making smart financial decisions and thinking about whether a purchase will benefit your financial health.