As we approach the end of 2020, it’s a great time to reflect on your financial activities throughout the year. More importantly, it’s the perfect opportunity to review your net worth. You might look at your house, your car, savings in the bank and all the money you’ve invested offshore and think that you’re in a good financial position. The value of all these assets add up to an amount that can seem substantial. However, when you want to determine your personal net worth, it all comes down to the difference between what you own (assets) that can be converted into cash and what you owe (liabilities).

Why is your net worth important?

In order to be in a healthy financial position, you want your assets to exceed your liabilities – a positive net worth. There are three main reasons why you want to calculate your net worth:

  • Knowing your net worth helps you understand your current financial situation.
  • It allows you to check if you’re moving in the right direction, planning for the future and ultimately progressing toward your goals.
  • By knowing if you’re financially healthy, you’ll be more mindful when it comes to spending and better prepared to confront financial realities.

How to calculate your net worth

In a perfect world, you’d want to see your debt decreasing and your investments growing. If this isn’t the case, it’s time to act and start saving more than you spend. To calculate your net worth, simply sign up for 22seven, link all your accounts and add additional things you have or owe. The app will do the rest for you automatically. Here’s how to get started.

If you prefer to do things manually, you can also set up a personal net worth statement by listing all your assets and liabilities. Here’s how:

  • List your assets, estimate the true value and add it all up. This may include things like:
    • Money in your bank and savings accounts
    • Property (the current market value or purchase price if bought in the last five years)
    • Your car (use the trade value obtained from a dealership or automatically find out what your car is worth by adding it to 22seven)
    • Other investments and savings like cryptocurrency
    • Retirement funds
    • Alternative investments such as wine or art (independent service providers can provide valuations)
  • List your liabilities and add the outstanding balances. This includes:
    • Credit card balances
    • Car loans
    • Home loans (mortgages) and other debt
    • Store accounts
    • Other loans, such as outstanding student loans

Once you’ve done this, all that’s left is some basic math where you subtract your liabilities from your assets to calculate your net worth.

Because everyone has different goals and unique financial situations, it’s also important to be gentle with yourself. Setting financial goals and sticking to them will start to pay off. Seeing your net worth grow in the short term will give you the discipline to keep on track with reducing your debt and growing your investments in the long run. Remember, baby steps go a long way!

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Marnia has joined the 22seven team as a Slice and Blog writer. She’s currently gaining exposure to financial reporting and forecasting at De Beers Group, as well as pursuing the CFA designation. She has a passion for the ever-changing and hyper-competitive world of business. Continuous improvement and endless development are what interest her on a daily basis. Her love for running and the outdoors keeps growing, as nature is always constant and honest, so it is there where she finds her peace.
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