Calculating net worth is simple using the fundamental formula: Net Worth = Total Assets – Total Liabilities. This calculation shows your true financial position and wealth.

The Net Worth Formula Explained:
Net Worth = Assets – Liabilities

Step-by-Step Net Worth Calculation:

1. Calculate Your Total Assets
List everything you own at current market value:

Financial Assets:
– Cash and bank account balances
– Investment accounts (stocks, bonds, mutual funds)
– Retirement accounts (401k, IRA, pension values)
– Savings accounts and CDs

Physical Assets:
– Primary residence (current market value)
– Other real estate properties
– Vehicles (cars, boats, motorcycles)
– Jewellery and collectibles
– Electronics and valuable possessions

2. Calculate Your Total Liabilities
List all debts at current outstanding balances:

Secured Debts:
– Mortgage balances
– Home equity loans
– Car loans and vehicle financing

Unsecured Debts:
– Credit card balances
– Student loans
– Personal loans
– Money owed to others

3. Apply the Net Worth Calculation
Total Assets: £XXX,XXX
Total Liabilities: £XX,XXX
Net Worth = £XXX,XXX – £XX,XXX = £XXX,XXX

Net Worth Calculation Example:
Assets:
– Cash: £5,000
– Investment accounts: £25,000
– Home value: £200,000
– Car value: £15,000
– Total Assets: £245,000

Liabilities:
– Mortgage: £150,000
– Car loan: £8,000
– Credit cards: £3,000
– Total Liabilities: £161,000

Net Worth = £245,000 – £161,000 = £84,000

Understanding Your Results:
– Positive net worth: Assets exceed liabilities (good financial position)
– Negative net worth: Liabilities exceed assets (need debt reduction focus)
– Growing net worth: Financial progress over time

Tips for Accurate Net Worth Calculation:
– Use current market values, not purchase prices
– Include all assets and liabilities
– Update valuations regularly (quarterly recommended)
– Be honest and comprehensive in your assessment

Why Calculate Net Worth Regularly:
– Track financial progress over time
– Make informed financial decisions
– Set realistic financial goals
– Understand your true financial position

Automating Your Net Worth Calculation:
While manual calculation helps you understand the process, automated tools like Know Your Dosh can track your net worth continuously, updating as asset values and debt balances change. This provides real-time insights into your financial health.

Regular net worth calculation is essential for effective financial planning and wealth building.