When was the last time you took a moment to assess your financial health? Most people don’t think about financial well-being until faced with financial stress, debt, or uncertainty. But just like your physical and mental health, your financial health is equally important. After all, your finances impact every aspect of your life, from your housing and transportation to your ability to retire comfortably. One easy way to assess your current financial standing is by calculating your net worth.
Net worth is the difference between your total assets and liabilities. It reveals your financial stability, ability to take risks, and potential for future financial success. With that being said, let’s learn how you can calculate your net worth and use it to improve your overall financial health.
- List down your assets and liabilities
Assets are anything you own that has monetary value, such as cash, mutual funds or fixed deposits, jewelleries, real estate, vehicles, and other valuables. It’s important to be thorough and include all your assets to get a true net worth figure.
Liabilities are what you owe, such as home loans, car loans, student loans, credit card debt, and so on. Gather all the documents related to your assets and liabilities, such as bank statements, investment certificates, and loan statements for accurate calculations.
- Use a net worth calculator online
Net worth calculatorsare readily available online, and most of them are entirely free to use. Simply input the values of your assets and liabilities, and let the tool calculate the results.
- Analyse results
A positive net worth means that your assets are worth more than your liabilities. It’s an indication that your financial decisions are sound, and you are making progress.
If your net worth is negative, don’t panic. Instead, use this as an opportunity to change your financial habits and adopt practices that will help you achieve your goals. Start by creating a budget, paying off debts, increasing savings, or reducing expenses.
How can you use net worth calculations to boost your financial health?
- Identify areas of growth and improvement
Your net worth reveals areas that require growth and areas that need improvement. For example, you might find out that a major part of your net worth is tied up in liabilities such as home loans or pending credit card bills. Focusing on reducing these debts can improve your net worth.
Besides reducing debt, increasing your income, savings, budgeting, and investing in income-generating securities can also help grow your net worth.
- Set realistic savings goals
Knowing your net worth can help you figure out how much you need to save for specific goals. For example, if you are planning to buy a house within 5 years, calculating your net worth will give you a target to work towards. If the results indicate that you have limited savings, you may need to adjust your spending habits and create a savings strategy.
If your liabilities exceed your assets, you can evaluate your spending habits and identify areas where you may be overspending. Based on this information, you can create a practical budget and prioritise your spending as per your goals and financial needs.
Important points to note
Remember that your net worth can change over time depending on your spending habits, investment performance, and other factors. Therefore, most experts advise to calculate it periodically, ideally, every six months. To speed up the calculations and improve accuracy, use an online net worth calculator and get an overall picture of your financial health within seconds.
Comments are closed.