Your economic situation is what matters a lot. Yes?
Your financial conditions define you in society. Besides that, you have to be well aware of your financial condition. This is why you have to know about your net worth.
People mostly ask what net worth is. Some of us fail to understand this concept. Actually there is not hard science in this. Once if you have learned about it, you will never forget it. This is just a fact which you have to understand in order to have a good and healthy financial life ahead.
Net worth is one of the important aspect to count when it comes to financing. It is really important for a person to know his net worth.
Net worth is just a way of measuring your financial health. A person should always have a goal in his life to increase the net worth.
Anyone who is aware of his assets and its value can calculate the net worth.
What’s in net worth?
Well the answer is very simple. There are many calculators and software which can help you in calculating your net worth. But you have to be your own calculator. You should calculate your net worth on your own. This will take some time, but it will worth it. Trust me.
The assets include the value of your
- saving accounts
- investment accounts
- retirement accounts.
The formula for calculating the net worth is that you add up the value of things which you possess and then, subtract the value of your debts from it. The number which will come after the result is your net worth. It’s like taking out the difference between what you have and what you are going to return.
Having information about your net worth keeps you updated about how strong your economic situation is. It tells you about the money you have for you and also how much of the money you have already spent.
There are times when our net worth can be positive or it can be negative as well. Your net worth can be positive when the value of your assets is more than your debts and when the value of your debts is more than your possessed assets, then it is negative.
Negative net worth
The negative net worth case happens with the students who are freshly graduate. The first reason is that they do not have jobs, second some of them have taken student loans and third reason is that many of them do not get jobs right after the college. These all reasons make way towards negative net worth. But of course you cannot sell all your important things like house and car because you have to live and earn something.
How to think about net worth?
When we talk about net worth, we have to think really wisely. Net worth is like a point which can be in your favor and which cannot be in your favor. You have to take net worth as a ball which you are going to hit in the court. One wrong move and you are gone
Your net worth can help you in your financial progress. If you make a very good financial move, then you win, but the wrong move can lead you to the defeat. Wrong financial choices will decrease your net worth and this is not good.
Let’s take an example, you are in a store and you have spent too much money there. Now, because you have spent a lot of money so you are going to use your credit card. Now what credit card does is that it allows you to do shopping for a big chunk of money, which is later deducted from your bank account.
You already do not have much cash in your account and you have taking a loan by shopping on the credit cards.
This will ultimately lower your net worth. You cannot do this.
You have to maintain a balance between everything you spend and everything you owe to someone else.
How my net worth can rise?
However, the other example of how your net worth can rise is here. Let’s suppose that you have reduced from your monthly budget and you are going to save that extra money. At the end of the month you will have a good amount of money in your account which will ultimately bring a level up to your net worth.
Having said that you have to maintain balance between the amounts you are spending and the amount you have. You have to take better decisions which can be beneficial in regard of your net worth. If you invest in good things, you will see an increase in your net worth, your retirement saving can also help you in increasing your net worth.
But you have to be very careful while shopping. Buy only what you need the most and leave the rest on window shopping. You can always use the calculator and calculate your net worth any time.
Anyhow, you have to be very careful about what you are buying and why. You have to be your own checker if you really want to bring up your net worth.
How can we keep check on what we are doing?
The answer to this question is very simple. First of all make a list of your financial preferences. Make a list what things you need most in your house on a monthly basis. Check that if you are spending too much money on the items which are really not necessary.
Also a thousand dollar question is are you saving money for your retirement? If not, then why? How will you survive then?
Once when you have made a list, calculate the net worth. Compare the previous month’s net worth and the current month net worth.
Make a quick calculation:
Monthly net worth = Last month net worth – current month net worth
Did you find any difference? I am sure you did.
Keep calculating and keep comparing the net worth of previous months. Sometime you will see an increase and sometimes you can see a decrease in numbers, which is perfectly fine.
Just keep doing it until you witness a very significant and positive difference. This is also a way of improving your financial conditions. So, now you know why net worth is important.
Full calculation below!
What should be your net worth be by the age of 20/30/40/50/60+?
That’s the hardest question as where to invest 1,000!
The age factor is one of the most important things when it comes to calculating your net worth.
The questions which are frequently asked includes this one question that if a person’s age is xx then how much his net worth should be? Of course, your age matters a lot in many aspects, but the economic factor is kind of personal thing which varies from person to person.
There are people who are very young, but there they have a huge net worth and there are people of the same age whose net worth is negative. Giving a very absolute answer to this question is impossible because the question and answer can be very arbitrary and abstract.
Economic situations are very personal and everyone uses their economic power according to what their economic condition allows. So, giving a very reasonable and absolute answer can be a very big risk. If you don’t know what net worth mean, you need to make it clear!
One thing which can be answered with this kind of situation is that if you really want to be one of the millionaire then think a number for yourself and select an age. That when do you want to reach at this position. This way you will have a path to follow. Sometimes this pass can shift, but at least you will have some outline which you can always follow.
In 20s –start building your future wealth
When you reach to the age of 20, most of your fellows are out of the college and have started working somewhere. This is the best age to decide what you really want to do and how do you want to save money for your future. It all also depends on your loans and debts which you have taken. If you can pay them off early, then you will be ready to save for your own good.
In my 20s, I didn’t knew what I want to do but I knew, what’s my target!
Sometimes what happens is that students do not start work. They rather decide to go for graduate studies. So, keeping this view they start their jobs late and pay off their loans late. But what determines your future is the amount of money you are earning.
There are people of the same age who are earning $40,000 per year and some are earning $100,000 at the same age.
So, it all depends on how you return your loans and start saving for yourself.
Age 30: $0 – $50K
When you reach at the age of 30, it is the most crucial time of your life. It is the time when most of you are planning to get married. And of course by this age, you have paid off all of your student loans and other debts. So, you are free of every kind of loan and every kind of debt. You are building your net worth. By 30 you should know, what net worth mean!
This is the age when you can start living your own life, and you have everything which is necessary like job along with security, a good house and a car.
But some of us make some silly mistakes. This is okay because we all make mistakes. We all are humans and anyone of us can have this situation in his life. They spend their money on some things which are not necessary which leaves them same as they were in college.
Age 40: $100,000 to $200,000+
When a person is in his 40s, technically he should be free from all the debts and loans which he has taken. At this age, he has to have a very nice amount of money as his savings.
A person should have a target in his life you know that when he will reach any particular age, he should have some six-figure balance in his net worth sheet. This is what an ideal thing is. In this age, you should have enough money in your account which you can use to buy some really nice and amazing things but not so many. Keeping a balance is really important.
Age 50: $500,000 to $750,000+
Most of the people want to get retired at the age of 50, but do you have enough money which you can use in your retirement. Your net worth has to be really high if you are planning to get retired. You have to act really wise when it comes to retirement.
This is one of the most important decision of your life.
This one choice can change your life completely. So, if you think that your net worth is not surplus, then do not even think of getting retired. Make more money and save and bring an increase in your net worth.
Age 60: $1 million+
The age 60 is one of the golden time of your life. This is the time when most of the people have money in gracious amount. They can live their life lavishly. By that age you definitely know, what net worth mean!
But are you a millionaire in your 60s?
This is the question which you have to ask from yourself if you are not a millionaire by now.
There are people who make some silly mistakes in their life. They don’t know what net worth mean. Most of the people are still stuck in their mortgage balances, and some other debts. By this age you have to be free from all of your debts. You have to be free from every kind of financial struggle.
You have to pay all your debts in your 40s and keep the next 20 years to save a massive amount of money for yourself, which you can use for yourself only.
This is an outline which anyone can follow, but obviously our financial conditions are different from each other. You can easily bring an increase of $10,000+ per year in your net worth.
How to Calculate Your Net Worth
This task is really easy.
All you need is some paper, pencil and a calculator. This will take a few minutes and you will know your net worth without any hard work.
Make a list of all your assets.
Making a list of your assets really helps. So, what you are actually going to do is take some paper and a pen.
Start writing what you own.
This includes all the valuable things. Your home, your car, all the investment accounts, your current checking and saving account balances, any other real estate which you own. This also includes the bonds if you have any and also stock holdings, which in case if you have any.
The next step is to write their value.
It all depends on you how you want to do it. You can do it any way you feel comfortable with. Write their numbers and calculate. This way you will know the total value of the assets you own. And if you are afraid that you can misplace this list, then write assets in capital letters and save it somewhere you can easily find again.
Make a list of all your debts
Making a list of all your debts is as important as you have made a list of all the assets you own. This list includes every financial history. You have to write your personal loans, your student loans, your credit card balances, your home loans, your car loans and any other loans in case you have taken.
Write up their amounts in a proper way in front of every loan. I would recommend you to write in a very lined up decimal numbers. This way you can easily figure out the numbers and can calculate them without any trouble.
Write DEBTS in capital letters. Once you have calculated the numbers. What you are going to do is that you will write TOTAL in capital letters on the left side of the page/list. This total is the total amount of all of your debts.
After doing this, take your total amount of assets and total amount of debts and subtract. The resulting numbers will be your net worth.
Some implications of net worth in Practice
– What does a negative net worth mean?
Having said that net worth can be of two types. Positive and negative. Some people start to worry if their net worth comes negative. There is no need to get worried about. The negative net worth is because you are still in debt. The number of your assets is still less than the amount of your owned assets.
– How can I make it bigger?
Your net worth and loans have an indirect relationship. When you are paying your loans very fast, you are actually making progress. You are saving money which will increase your net worth. Pay off your loans, save money and keep a balance on spending extra money.
– How often should I calculate my Net worth?
As mentioned earlier that you are going to keep check and balance on your money and you are also going to calculate and compare your net worth. What is recommendable in this situation is that you can calculate your net worth every month. This way, you will track on what you are doing with your money and where are you spending some extra money which actually you should save. You should have a goal to increase your net worth every month.
You can calculate your net worth online by using Cuna Brokerage Services Net Worth Calculator but some of us are really concerned about the privacy which is a very valid point. If you have any problem with online checking, then you can use yourself as a calculator.
Here it is, I hope you gained some new knowledge.
If you want to start building your wealth right now, let’s continue with investing