We often browse net worth of celebrities to know how financially well off they are in life. Jet Li is worth USD 520 million. What does it mean?
Do you know your personal net worth, and keep a track of it to know your financial growth over time, and also financial level at any point?
Net worth not only tells how wealthy or poor we are, but also how far we have come in our financial journey.
Personal net worth is important. But it’s more important to calculate, and keep track of it – quarterly or yearly.
So, let us learn basics of personal net worth, and how to calculate it from your own personal balance sheet.
What is Meaning of Net Worth?
Net worth is a difference between monetary values of everything you own and everything you owe.
Things you own can be stock, cars, bonds, precious metals, cash, saving accounts etc, and things you owe will be loans, unpaid taxes etc.
This means your personal net worth will come either positive or negative depending on whichever is in excess.
Excess of monetary values of things you own over that of things you owe will give a positive net worth and vice-versa.
You also realized now that our aim should be to have a positive net worth, not a negative one, for a financially secured life.
How to Calculate a Net Worth?
Net worth = Assets – Liabilities. It means you should have your personal balance sheet listing all assets and liabilities.
We can see the net worth is calculated subtracting total assets value and total liabilities value. All must be at their current values.
In an above balance sheet of a family (dummy amounts), I calculated the net worth as a balancing figure (b/f) in red fonts.
Important To Track Net worth?
Net worth tells where we stand financially. It directs where we want to be, and motive in moving forward with our financial plans.
If you have to wonder where your money are gone at the month-end, it is certain you don’t budget or track your net worth.
In other countries, there are many apps to help to track net worth. But in Bhutan, we can do the old way – in paper or Excel.
In Bhutan we don’t have reports on average net worth by age groups. Let us see 2024 American Average Net worth.
We can’t claim we must have same net worth like Americans. But I do not have even 20% of an American of my age group (35-44).
But Net Worth Isn’t Everything
If net worth tells how wealthy we are, it doesn’t account other wealth like time, intellectual, social, wellbeing etc.
It considers only the financial wealth. There are people who don’t have a financial wealth but lots of other types of wealth.
But when we are in mainstream society, financial wealth is as important as other wealth. So keeping track of it is also important.
What do you think of tracking a personal net worth? Do you know your own net worth?
