This article talks about the importance of finding your net worth, and explains how it should be calculated.
We go to a hospital or the family doctor from time to time for routine check-up. Even when we are not experiencing any problem, we do it – just to ensure that our physical health is fine.
As savvy investors, shouldn’t we do some kind of check-up to evaluate our financial health too? Just like a physical health check-up, is there something that can tell us where we stand financially?
Yes, there is a tool available to find out just that – and it’s called Net Worth.
What is Net Worth?
Net worth tells you where you stand financially. It is the sum of all your assets, less all your liabilities. It gives you the true picture of what you actually own.
For example, you might feel happy that you own an apartment. Yes, that is something to feel proud about. But if you have taken a loan for buying it (that is, if you have a mortgage on it), isn’t that a liability tied to that home that you also have?
Since Net Worth calculation considers both assets and liabilities, it gives a truer picture of your financial standing compared to any other tool.
Calculating Your Net Worth
As such, calculation of your Net Worth is fairly simple. It is just the sum of all your assets less all your liabilities.
Net Worth = Sum of all Assets – Sum of all Liabilities
The problem is in recognizing the assets and liabilities!!
Therefore, let me list down the items that you should consider as Assets, and the items that you should consider as Liabilities.
Login Required Download the spreadsheet to find your Net Worth
What should you consider as an Asset?
- Market value of your house
- Market value of any land you own
- Market value of your shares / mutual funds
- Market value of your car / two wheelers
- Market value of your jewellery
- Cash in your bank account
- Cash at your home
- Fixed deposits (FDs) that you have
- Your balance in the Public Provident Fund (PPF) account
- Amount in Post Office Monthly Income Scheme (PO MIS)
- Amount in National Savings Certificate (NSC)
- Amount in Kisan Vikas Patra (KVP)
- Amount in any other debt schemes
- Amount receivable from some other person
What should you consider as a Liability?
- Outstanding principle on home loan
- Outstanding car / two-wheeler loan
- Outstanding personal loan
- Any other loans outstanding
- Credit card payables (full amount, not just the minimum due!)
- Any bills payable
- Any other payables
Your Net Worth
Now that you have listed all your Assets and Liabilities, just add up all the assets, and subtract all the liabilities from it. That is your Net Worth – something that you actually own!
Login Required Download the spreadsheet to find your Net Worth
You should find your Net Worth once every six months, so that you know what you own, and which direction you are going.
Needless to say, the higher the Net Worth, the wealthier you are!
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good work really usefull
You have chosen a good topic to write about. Till now I never thought about my networth !
Hi ,
I have read your article. It’s really worthy … but I have a question that whether we should incorporate our EPF balance in our asset as on every 31st March….and if not then why? One more question ….is the surrender value of a life insurance policy constitute as an asset?
waiting for your reply….
while calculating my assets how do I account for monthly pension from superanuation (paid to me from LIC) .on my demise the pricipal amount would go to my nominee.
Nice article, but can’t download the excelsheet — it throws an authorization error
I have the same qn as raju ..whether we should incorporate our EPF balance in our asset as on every 31st March….and if not then why? One more question ….is the surrender value of a life insurance policy constitute as an asset?