Net worth is one of the best ways to calculate your total wealth, not just your liquid resources. It puts a figure to all of your tangible and intangible assets and is the best metric for tracking the growth of your wealth.
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Net worth, in simple terms, is the total amount of your assets minus your total debts. All of your assets, like retirement accounts, properties, and stocks, will be added up, and then the total amount of your debts and liabilities will be subtracted. The figure you are left with is your net worth.
Your net worth is one of the best metrics for tracking your overall wealth as it takes into accounts any money you owe as well as non-liquid and intangible assets. It calculates intellectual property, online assets, and bonds. If all of your money is tied up in assets, then you may have very little in your savings accounts but a high net worth.
Your net worth is the best way to calculate the total amount of your estate. When you die, your estate will be in charge of paying off all your debts before your assets are split between benefactors. By finding your net worth before you start estate planning, you will have an accurate picture of how much you can bequeath to your family. Remember that non-liquid assets are a little more difficult to split between multiple benefactors. Your estate will either have to sell the asset and split the profits or you could leave one asset to one party. There is the possibility to leave an asset like a rental property in a trust that splits the profits amongst the trustees. If you do plan to split an asset or the whole estate between multiple parties rather than bequeathing certain things to certain people, then it is vital to appoint an impartial executor to mediate disagreements.
Finding your net worth is quite simple. Write down a list of all of your assets and how much they are worth. Assets may include:
Remember, for depreciating items like vehicles, technology, and non-antique furniture, you calculate the current value, not what you paid for the item. Also, read the agreement you signed for jointly owned assets. Some agreements would mean your share of the assets would pass automatically to other partial owners, rather than being bequeathed as your estate.
Next, you need to list all of your debts. These are things like:
Add up the total amounts of your assets and liabilities and use the following formula:
Net worth = Assets – Debts and Liabilities
When you are calculating your net worth, you will see how many records you have to track down. Keep these in a particular spot together so you can make calculating your net worth in the future much easier. Generally, this is useful for estate planning, as these documents will be vital for your executor when organising your estate after death.
Also, remember your net worth can fluctuate regularly. Things like property prices and the values of stocks will rise and fall on a regular basis. Be sure to calculate your net worth again every time you review your estate plan. Keep the file or paper where you calculated your assets and liabilities with all of your other net worth financial documents so you can update your net worth calculates quickly.