How to calculate net worth may be of interest to you if you ever Googled “the richest person in the world”. Or you might be curious how much your favorite actor or singer made last year. Net worth is the measurement used to determine wealth. And while it may be fun to learn how much money the rich and famous make, learning how to calculate net worth is important to your financial wellbeing too. In this blog post, we’ll explore the net worth definition, its importance, how to calculate it, and steps that aim to increase it.
What is Net Worth?
Before we dive into how to calculate net worth, let’s define it. Net worth is the difference between your assets and liabilities. In other words, it’s the value of everything you own minus what you owe. Assets are anything you own with monetary value. Your car, your home, and money in your savings and retirement accounts are examples of assets. Liabilities are your debt. Examples of liabilities are your mortgage, student loans, and credit card debt.
Let’s Explore Reasons Your Net Worth is Important
- It gives you a clear picture of your financial health. If your net worth is positive, you have more assets than liabilities. This is a good sign you are on track financially. If it’s negative, you owe more than you own. This is a sign that you may need to make some changes to improve your financial health. By tracking your net worth over time, you can see if you’re making progress toward your financial goals.
- It helps you make better financial decisions. When you know your net worth, you can make more informed decisions about how to spend and save your money. For example, if you have a negative net worth, you may want to focus on paying down your debt before making any major purchases.
- It can motivate you to save more. Seeing your net worth increase over time can be a powerful motivator to save more and spend less. By setting financial goals and tracking your progress, you can stay motivated to achieve your desired net worth.
How to Calculate Net Worth
The equation to calculate your net worth is Total Assets – Total Liabilities. Here’s a step-by-step guide to calculating your net worth:
1.List all your assets, including:
- Investments (stocks, bonds, mutual funds, etc.)
- Retirement accounts (401(k), IRA, etc.)
- Savings accounts
- Any other valuable possessions (jewelry, art, etc.)
2.Estimate the value of each asset
You can use online tools or professional appraisals to help you find out the value of your assets.
3.Add up the total value of your assets.
4.List all your liabilities, including:
- Car loan
- Credit card debt
- Student loans
- Any other outstanding debts
5.Add up the total value of your liabilities.
6.Subtract your total liabilities from your total assets.
The resulting number is your net worth.
Keep in mind net worth is not a static number. It changes with the values of your assets and liabilities. And it’s important to track your net worth regularly and adjust your financial plan as needed.
Let’s Explore Several Ways You Can Aim to Increase Your Net Worth
Use a Budget
Nurses typically have a steady income and it’s essential to manage it wisely. Budgeting is the first step in building a positive net worth.
Reduce Your Expenses
Look for ways to cut back on your spending, such as eating out less or canceling subscriptions you don’t use.
Pay Down Debt
One way you may be able to increase your net worth is to pay down your debt. By reducing your liabilities, you’ll increase your net worth. Consider starting with high interest debt, such as credit cards and work your way down. Also, consider ways to pay off your student loans.
Another way you can aim to increase your net worth is to save more money. By putting more money into your savings and investment accounts, the goal is to increase your assets and your net worth. Also consider ways to earn more money to put aside for savings. One type of saving account to consider opening is an emergency fund. An emergency fund can help prevent unexpected expenses from eroding your net worth. Aim to save at least three to six months’ worth of living expenses.
Investing your money wisely can also affect your net worth. Consider working with a Financial Advisor to help you pick investments aimed at growing your assets over time. Explore investment opportunities that align with your financial goals. Diversifying your investments aims to help grow your net worth over time.
Avoid Lifestyle Inflation
As your income grows, resist the temptation to increase your spending. Keeping lifestyle inflation in check allows you to save and invest more.
Consider prioritizing retirement planning. By contributing to retirement accounts, such as a 401(k) or IRA, the goal is to help grow your net worth in the long run. Also, consider speaking with your Human Resources Department to find out if your employer offers a matching contribution retirement account. Consistent contributions and diversified investments are key to helping you prepare for retirement.
Enhance Your Financial Education
Continuously educate yourself about financial matters. Understanding investments, taxes, and budgeting can help empower you to make informed decisions.
In conclusion, knowing your net worth is an important part of your financial health. It gives you a snapshot of your finances to help you set goals and make informed decisions. By following the steps outlined in this blog post, you can calculate your net worth and take steps to aim to improve it. But remember, your net worth is just one financial metric. It does not necessarily reflect your financial health or stability on its own. It’s important to consider factors like income, expenses, and goals when assessing your overall financial situation. Tracking your net worth over time can help you check your financial progress and keep you on track. By managing income, reducing liabilities, and making informed financial decisions, nurses can achieve a positive net worth. Keep in mind that building wealth is a gradual process. And with dedication and sound financial choices, achieving your financial goals is within your reach.
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The use of asset allocation or diversification does not assure a profit or guarantee against a loss.
Georgene Collins, RICP®, RN, PhD, MBA is a registered nurse turned Financial Advisor at Airey Financial Group. Georgene helps other nurses take control of their finances and prepare for retirement. Georgene began her career with Airey Financial Group in 2017 after retiring from 30 years in healthcare.
Georgene holds the Retirement Income Certified Professional (RICP®) designation from The American College of Financial Services. She holds health and life insurance licenses and a long-term care certificate in Indiana and Illinois. Georgene is a Registered Representative and Investment Advisor Representative and has earned the FINRA Series 63 and 65 registrations.