Why should you calculate your net worth?
An individual’s net worth is defined as the difference between the assets he owns and the liabilities he owes. So it lets you know if you are building on assets and if your financial health is in good shape. It also tells you the amount of liquidity or cash you have. Finally, it indicates whether you are controlling the interest rate of your assets and liabilities.
That is your assets?
Assets can include sustainable land and houses, cash, stocks, vehicles, mutual funds, provident funds, art, gold, jewelry, electronics, or other consumers. You must take depreciation into account when calculating the market value of your electronics, cars, or other consumer durables.
Tea passive It will include everything outstanding for mortgages, automobiles, and other consumer durables. It will also include any outstanding payments on credit cards and other loans that you may have taken from friends and family. The difference between assets and liabilities gives you the net worth. Is it growing every year? A growth in your net worth indicates that you are financially sound. Therefore, net worth is a useful tool to determine whether or not you are making financial progress.
You also need to make sure you have enough cash to cover sudden expenses like an emergency and a costly hospital stay. The general rule of thumb for asset management is that about 25% of your income should be used to create assets and about 20% should be liquid assets.
Another important aspect that a net worth calculation provides is the mismatch in the interest rate of your assets and liabilities. If you are paying a higher interest rate on your liabilities, then you better pay off debts by breaking up your assets.
You should check your net worth each year and compare it to last year’s performance. That way, you can control the management of your net worth. The details of your assets and the corresponding values can be entered into an Excel spreadsheet and the value of the total assets can be calculated using a ‘sum’ formula. Similarly, the descriptions and values of the liabilities can be entered in parallel columns and the total of the liabilities can be calculated using the ‘sum’ formula again. Then using the formula ‘= total_assets-total_liabilites’ you can easily find your net worth. With the formula ‘= today ()’ you can display the calculation date of your net worth. At the top of the worksheet, you can combine and adjust some cells to give your worksheet a title called ‘NET VALUE CALCULATOR’. Of course, the worksheet tab can also be renamed to ‘networth’.