Whilst most of us aren’t going to make the Sunday Times Rich List at any point in our lives, it can still be interesting to figure out how much our net worth is.
Plus it can be a really useful exercise to help you visualise your financial situation. In so doing it can aide decision making about where you need to focus your efforts in the short and long term to ensure you have the money you need for the life you are leading now and want to lead in the future.
Doing the maths couldn’t be simpler. So make yourself a cup of tea, get a pencil and paper or fire up your smartphone calculator, find a comfy seat and let’s begin.
Where is the value?
Firstly you need to make a list of all the ‘assets’ you own that have significant value. By significant, this should probably mean anything over £500. And remember, that value needs to be what it would be worth if you sold it, not what you paid for it.
Start with the large items such as property or vehicles. The value you put beside these should be the full value. For example, if you own a house but have a mortgage on it, put the full value of the property, not just the equity you have in it. You’ll be taking the mortgage into account in the next step of the calculation.
Once you have the larger items listed think of other belongings such as art, furniture or antiques. Plus jewellery and watches, or even handbags, if you are lucky enough to have a collection of designer handbags it can be worth checking out the price you might get for these if you sold them.
Then think about what cash you have in savings. Include not only your cash savings account(s) but also your ISA(s) including your IFISA, pension(s), and all investments.
You don’t need to be too accurate if you only want to get a rough idea of your net worth, so you can estimate most of these values. If you want to be more precise then you’ll need to look through your filing to find the latest valuations.
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How much do you owe?
This bit isn’t nearly as much fun, but it’s necessary if you want to calculate what you’re worth.
Again, make a list, but this time you need to put down anything you owe. For example, with property or properties that you own you’ll need to note down what is owed on any mortgage(s).
Include in this list credit card debts, money owed on any car finance deals you have, and any other types of loan that are outstanding.
Also, consider any taxes that you are currently accruing. What you’re aiming for when you calculate your net worth is a snapshot in time representing your value right now. This is why taxes owed need to be included.
Need to save more? Check out our guide to money saving apps that could help you look after the pennies.
The fun part!
Now total up both lists.
You should end up with two figures. One is the gross value of your assets based on what you would realise for them if you sold them all.
The second will be a gross value of your liabilities, or what you owe to others.
To calculate your net worth deduct the gross value of your liabilities from your assets. The figure you are left with is your net worth.
Chances are you’ll be surprised. Whether it is pleasantly surprised or slightly upsetting will depend on whether you tend to overestimate or underestimate your wealth on a day-to-day basis. Eitherway it is a useful exercise to go through once in while for a variety of reasons.
Firstly it means you can keep track on whether your financial worth is increasing or decreasing.
An increase is obviously what you’re aiming for even if it’s not always possible.
The second reason is that it can empower you to make the right financial choices in everyday life. If your net worth is lower than you want it to be, then simply by being aware of this can help you to be more frugal. Conversely, if you’re surprised it is higher than you expected this might empower you up to make some different decisions that affect your finances, such as whether you can afford to give up your job and retrain to do something that might make you happier.
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If you’re interested in finding out more about saving and investing check out our new magazine ‘Fixed’ which has loads of tips and hints about how to save cash.