Wednesday, December 26, 2007

Debt management: how to calculate your net worth.


Have you ever watched entertainment news shows that tell you how much a certain star is worth in Tinsel Town and wondered, "how do they now that?" Have you ever wondered, "how do I know how much I'm worth?" Or have you wondered, "How much debt do I have and can I improve my finances?"

Figuring out your net worth is a great first step in debt management. It also will provide you with a road map in wealth creation. To get where you want to go financially you need to know exactly where you are starting from. In debt management, the best place to start is to know exactly how much you own and how much you owe--your net worth.

Calculating your net worth is simply taking what you own and subtracting out what you owe or in other terms your assets minus your liabilities.

To determine your net worth start by making a list of everything major that you own like your house,car,checking and savings accounts,401K account, investments,precious metals,etc. Determine the market value of each item and calculate a grand total of every thing you own.

Now make a list of every thing that you owe: mortgage,car loan, student loan, credit card debt and anything else that you owe money on. Use the outstanding balance for your calculation. Total the balances of what you owe and subtract it from what you own. This your net worth.

Example:

Assets:

House $200,000
Car 1 $ 25,000
Car 2 $ 15,000
Checking $ 3,000
401K $150,000
savings $ 300
________
Total Assets $393,300

Looking good!

Liabilities:

Mortgage $150,000
Car 1 loan $ 18,000
Car 2 loan $ 5,000
Credit card $ 8,000
Student loan $ 10,000
________

Total Liabilities $191,000

Total Assets $393,300
Total Liabilities $191,000
________
Net Worth $202,300

Not bad! Use your net worth statement as a starting point to improve your life financially and manage your debt. Look for ways to improve your net worth by paying down debt when you can and calculate your net worth once a month or once every six months to see how your doing.