In your financial health your networth analysis can throw many results. As you are progressing in your career your income also increase and you enhance your investments. Ideally, your networth should also grow. But many of us avail liabilities such as housing loan or car loan which actually reduces your networth. If you are not doing well financially it gets easily reflected here. There are many other checks you can do by analyzing this one single aspect of your personal finance.
What is Networth?
A networth shows you how much worth you are. Put simply if you have to liquidate all your assets and pay off all your liabilities then this much money is what you will be left with for your living. A networth takes into account your assets and liabilities and whichever side you are tilted more will be the progress towards your financial well being. So more liabilities will make you less worth while if you are left with good amount of wealth your financial health is fairly good. The continuous rise in our networth is what we should aspire and what we all work for.
How To Calculate?
Calculating your networth is no rocket science. It has two aspects – what you own and what you owe. The difference between the two will give you your networth position.
Here is how to go about it-
- What you Own– This section will include your total assets viz your house, your car, your investments such as stocks, bonds, employer benefits like PF, other movable items such as jewellerey etc. and cash lying in your liquid accounts. In a nutshell this portion of your networth will include everything which you own today. You can choose to limit your assets above a threshold value or include everything you have.
- What you Owe: This section details out all your liabilities which you have to repay. Housing loan, car loan, personal loan, credit cards payment and any other such outstandinsg which you have to clear first. The total debts should clearly state what is the total outstandings you have to repay.
Once you have listed down your assets and liabilities, subtract the two. The difference is your networth which will give you a clear picture about your financial position.
Positive Networth -We all want it and the larger is the positive difference the better is your financial health. A positive networth means that you have enough assets to repay your liabilities and you will still be left with the extra wealth. So a positive networth is a sign of your sound financial health and you should always aim for it.
Negative Networth– A negative networth can have larger significance. In one glance it tells you that you are not adding any financial worth to your life at present. The negative networth can be due to various reasons such as loans, high credit cards outstanding, no savings etc. Young earners in their initial career may face this situation when they take up student loans or utilize high credit limit. Similarly at middle of your career when you go for loans such as housing loan or a car loan you may find your networth reducing. But a negative networth at this stage signifies some bigger financial problems as ideally, your assets should have also grown. So at any stage of life if you see a negative networth it simply means your financial situation is not allowing you to save and so its time you take some corrective measures.
How to Improve Your Networth?
If your networth is negative or not growing then you certainly have financial issue and you need to resolve them. There can be two reasons-
- Your liabilities are high and so to improve your networth you will have to find ways to reduce them. The task will be easier if it is a credit card outstanding but if it’s a long term loan like housing or car then you will have to plan for it.
- Sometimes a lower growth in your income coupled with rise in expenses do not allow you to save which is necessary for enhancing your networth. Here you need a re-look at your expenses and plan for some enhancement in your income. You should analyse whether it’s a temporary phase or you will have to rethink about your career. Whatever decisions you take the objective should be to increase your savings.
When to Monitor
How frequently you should monitor your networth?. There is no specific answer to this but you should set a periodic review to ensure you stay on course. It also depends on which life stage you are in. When you are young you can actually set it monthly. Since you do not have much of responsibilities or liabilities the excess can be utilized for reducing debt or to increase personal savings. If you are at middle of your career then you can track it on a quarterly or half yearly basis since your loan liabilities are for a longer period and fixed for the term. Whatever period you choose to track your networth important is to analyze it and keep yourself aware how you are progressing financially.
Tools To Use
An excel is the simplistic tool which you can use for monitoring your networth and it does not require a rocket science. A detailed networth tracker like below will be good enough–
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- Online Tools
Many financial websites today have networth calculators. If you are using online money manager like Perfios to manage your finances then it creates a networth report and shows you the details. Such tools surely proves to be a good means to keep yourself aware.
Monitoring your networth has a larger significance. As a youngster or in the middle of career or at retirement a networth analysis can answer many queries about your personal finance. Calculate, track and use it for the benefit of your financial well-being.
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