How to Calculate Your Net Worth and Why It’s Important
You may have heard of a celebrity’s net worth, but have you ever considered calculating your own? Watch as personal finance author Stefanie O’Connell discusses how to calculate your net worth and why figuring out this number can be important for your financial future.
STEFANIE: When you think about your money and what would make it easier to manage, you may think that just having more of it may solve all of your problems.
STEFANIE: But the truth is, if you don’t know how to manage the money you already have, earning more of it probably isn’t going to make your money challenges magically disappear.
STEFANIE: Hi everyone, I’m personal finance author, Stefanie O’Connell from stefanieoconnell.com, here to share an important metric for managing your money and how to calculate it for yourself.
STEFANIE: Your income alone isn’t sufficient in providing a clear picture of your financial health, because you don’t really own your income. You only own the part of your income that you keep.
STEFANIE: Your net worth, on the other hand, is the value of everything you own, minus the value of everything you owe, which offers a much more holistic picture of your financial health at any given moment.
STEFANIE: To calculate your net worth, subtract your liabilities (what you owe) from your assets (what you own).
STEFANIE: From remaining student loans to the unpaid balance on your mortgage or car loan, your liabilities include any money that you have borrowed and are currently paying back.
STEFANIE: Your assets include any money you have in checking, savings and investments, plus the current value of any big ticket items that you own. For most people, this includes things like retirement accounts, houses and cars.
STEFANIE: As you work through the process of calculating your net worth, know that it’s OK to find things in your financial life like large debts or insufficient savings. Hopefully, this exercise can help inspire you to change them and that’s why calculating your net worth is an important first step.
STEFANIE: Once you know where you stand in your financial life, you can take ownership of it, and commit to increasing your assets and reducing your liabilities so that your net worth increases over time and eventually provides the foundation to support your future financial and lifestyle goals.
STEFANIE: Having this clear understanding of where you stand financially at any given moment can also serve as a gut check when asking yourself questions like ‘Can I afford it?’ or ‘Is this purchase going to bring me closer to or push me further from my goals?’
STEFANIE: The better the grasp you have on your net worth, the more you empower yourself to take ownership of your financial life and the more confident you feel in making the financial choices that support your desired future.
STEFANIE: For more tips on how to help manage and maximize your money, visit allstate.com/blog and follow me @stefanieoconnel.