Financial Planning
Ever wondered what your net worth is? Let's find out!
Wondering how much you’re really worth? Learn how to calculate your net worth and start managing your money better!
Key takeaways
- Net worth is calculated by subtracting your total liabilities from your total assets
- It reflects your financial health and is essential for goal setting, loan approvals, and tracking progress.
- You can grow your net worth by saving more, investing wisely, reducing debt, and increasing your income.
Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones. Benjamin Franklin, one of the founding fathers of the United States of America, said that about 300 years ago. In today’s era, the absolute numbers of income you earn or the money you spend have gone up. However, the fundamental principle remains the same. You must focus on earning, saving and investing and control your expenses and borrowing. If you want to learn how to calculate net worth, read on.
What is net worth?
Net worth is assets minus liabilities. It is what you own minus what you owe.
Formula:
Net worth = Total assets — Total liabilities
If your assets exceed your liabilities, you have a positive net worth. Conversely, if your liabilities surpass your assets, you have a negative net worth.
How to calculate your net worth?
Are you wondering how to calculate your net worth? It’s simple! You need to follow these 3 steps:
List your assets
Assets are valuable things that you own. This includes:
- Cash and Bank balance - The cash you have and the money in your Savings Account.
- Investments - Fixed Deposits, Stocks, Mutual Funds, Bonds, Gold, etc.
- Property - Land, house, or any real estate you own.
- Vehicles - Car, bike, or any other vehicle.
- Personal belongings - Jewelry, art, or expensive gadgets.
Write down the value of each asset. If you’re not sure, you can estimate a fair price.
E.g. If you have,
| Cash | 30,000 |
|---|---|
| Savings Account balance | 40,000 |
| Fixed Deposit | 2,00,000 |
| Apartment | 75,00,000 |
| Car | 6,00,000 |
| Stocks | 3,00,000 |
| Mutual Funds | 4,00,000 |
| Provident Fund | 7,00,000 |
| Gold | 10,00,000 |
| Your Total Assets | 1,07,70,000 |
List your liabilities
Liabilities include money that you owe to others. Some common liabilities are:
- Loans - Home Loan, Car Loan, Student Loan, Personal Loan, etc.
- Credit Card debt - Outstanding amount on your Credit Card.
- Bills - Any unpaid bills
- EMIs - Any monthly installments to be paid.
- Other loans - Any money borrowed from family or friends.
Write down how much you owe for each.
E.g. If you have,
| Home loan | 30,00,000 |
|---|---|
| Car loan | 4,50,000 |
| Outstanding Credit Card balance | 55,000 |
| Your total liabilities | 35,05,000 |
Subtract liabilities from assets
The formula to calculate net worth is:
Net worth = Total assets — Total liabilities
Your total assets = ₹1.7 crore
Your total liabilities = ₹35 lakhs
Net worth = ₹1,07,70,000 — ₹35,05,000 = ₹72,65,000
So, you have a positive net worth of ₹72.65 lakhs, which means you have more assets than debt.
What is a good net worth?
A good net worth depends on many factors like your age, income, lifestyle, and financial goals. If you are in your:
- 20s—30s: Usually net worth may be low or even negative. It could be because you have a low salary or are just starting off, or you have a Student Loan or a Car Loan.
- 40s—50s: Net worth generally increases as you save and invest more.
- 60s—above: A high net worth can help you live comfortably without working.
Why is net worth important?
Financial health
Your net worth shows your financial health. A positive net worth means you are doing well, but a negative net worth means you need to focus on reducing debt.
Financial planning
Knowing your net worth provides clarity about your financial status. This helps in setting money goals more confidently.
Loan approvals
Banks check your net worth before giving Loans. A good net worth may potentially improve your chances of securing loans at competitive interest rates.
Track progress
Checking your net worth helps you track your financial progress. You can calculate your net worth every 6 months or a year to see how you are improving.
How can you increase your net worth?
Set financial goals: Set clear goals to help you stay focused on building wealth.
Save more: Increase your savings over time. You can simply set up automatic payments and Systematic Investment Plans (SIPs) to help you save regularly.
Invest wisely: Invest in different asset classes such as shares, Mutual Funds, Bonds, or Real Estate as per your financial goals. Please note that all investments carry risks and it's important to do your own research or consult with a financial advisor.
Reduce debt and expenses: Pay off your Loans and Credit Card bill faster. Spend wisely and avoid unnecessary expenses.
Increase income: Focus on increasing your income by starting a side business, working on getting a promotion, making passive investments, etc.
Conclusion
Knowing how to determine net worth helps you see where you stand financially. The key is to keep growing it, tracking it regularly, and setting smart money goals. A good net worth means a secure and stress-free future. So, start today and take control of your money!
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
Mutual Fund investments are subject to market risk. Please read all scheme-related documents carefully. Axis Bank Ltd. is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Any purchase of Mutual Funds by Axis Bank’s customer(s) is purely voluntary and not linked to availment of any other facility from the Bank. This content is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future returns. Readers are advised to consult a qualified financial advisor before making any investment decisions. Terms and Conditions apply.
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