DO YOU KNOW YOUR NET WORTH? WHY IS IT IMPORTANT TO CALCULATE IT?

Whether you think you are an ordinary individual, unlike the business tycoons and high profile individuals, you must know your net worth. Your net worth can be used to determine your financial worth and it helps you understand where you are at when it comes to your journey and goals. Your net worth is nothing but the amount by which assets exceed liabilities.

But how should you calculate your net worth mathematically?

With one simple formula: Assets minus Liabilities

1. Jot down all your assets, including bank balances, bonds, equity investments, mutual fund investments, property, PPF/EPF, etc. Estimate of the value of these assets.
2. Now jot down all your liabilities like all balances Home loans, Credit card loans, Personal loans, and Outstanding premiums, etc.
3. Calculate the difference. This difference is your net worth. In your younger days, you may have a negative net worth because of your loans. There’s nothing to panic about here. Start working towards turning this negative net worth into a positive one.

But why should you do this?

Your net worth reflects everything you own and everything you owe, which ultimately indicates your financial health. To keep track of your financial trends, you should calculate your net worth at least once a year.

The main benefit of having a high net worth is the ability to achieve your financial goals along with being financially secure and being able to live your life without constantly having to worry about how every decision affects your finances.

How can you increase your net worth?

Here’s a little guidance you can use along with a little discipline, willpower and work from your side:

• Work on reducing your debts

Avoid taking loans for consumption and personal reasons. Try to pay it off as soon as you can. Review your loan terms and conditions every now and then to see if they can be changed. If you want to save money, consider paying a bigger EMI or prepaying your debt.

• Make smart investment choices

Assets are very important. Don't let your money sit idle in the bank! Invest in a variety of assets such as Equity Funds, Property, Debt Funds to grow your finances and hedge against risks. Consult a financial planner/professional if you have questions about diversifying your assets.

• Less expenses, more savings

Track your expenses. What seems unnecessary and can be cut down? Make a list of your daily expenses to start with. Are you spending too much on outside food, new clothes, shoes and latest gadgets, etc. Taking a close look at your expenses can allow you to discover your bad spending habits and take steps to curb them. A little self-control goes a long way in increasing your savings and ultimately net worth. By controlling your expenditures and making smart lifestyle choices, you can save money.

Do you calculate your net worth on a regular basis? How have you increased your net worth?