“What is my net worth?” It’s a question you should be asking yourself as a new grad. Understanding your net worth – and knowing how to calculate net worth – is one of the most important basics of managing your money.
Here’s how to calculate net worth so you can get a snapshot of your current financial situation and come up with a plan to make it even better.
What is a net worth?
Before learning how to calculate net worth, let’s go over what the term actually means.
Net worth is essentially the value of everything you own (your assets) minus the total of all your debts (your liabilities). It’s a simple way to measure the health of your finances.
Net worth can be a negative or positive figure; the higher your net worth is, the better off you’ll be financially. A consistent increase in net worth is a good sign that you’re managing your money well and growing your wealth.
A decreasing or negative net worth, on the other hand, can signal trouble and that you need to change some habits.
How to calculate net worth
So how is net worth calculated, exactly? Calculating your own net worth is relatively simple, and is easily found by using the following formula.
Total assets – total liabilities = your net worth
For example, a mortgage is considered a liability, but the value of your home is considered an asset. So the net worth of your home is found by taking the value of your home minus the balance of your mortgage.
Here’s how to get an accurate, comprehensive net worth figure for yourself:
1. Add up your assets
Make a list of all your assets, including bank accounts, retirement accounts, investments, any cars, your home and any other property you might own, any valuable art or jewelry you own, and the like. Add up the value of all your assets and write the total.
2. Add up your debts
Next, you’re going to list out all your debts and amounts owed. This includes credit card balances, student loans, personal loans, auto loans, a mortgage, and so forth. Add up the balances of your debts and write this figure down, too.
3. Subtract assets from your debts
To reach either a positive or negative net worth number, you simply take the total of your debts and subtract it from the total of your assets.
Hopefully, you come out to a positive number. But as your financial situation changes, you might encounter a negative net worth. Don’t worry, this is totally normal. The goal is to work towards having a positive net worth through paying off debt, socking away money, and investing for the future.
Why knowing your net worth matters
Keep in mind, your net worth doesn’t make up your entire financial picture. It doesn’t show your cash flow, income, expenses, or spending habits – it’s simply a snapshot of where you stand now and where you’re headed if you continue down this path.
However, it’s still a vital part of managing your money so you can become more proactive about creating a positive net worth.
Here are three reasons why knowing your net worth matters:
1. Offers more financial freedom: Less debt and more savings offers the freedom to be able to make your own choices and not worry whether the bank will approve your loan or allow you to purchase something you’ve been saving for.
2. Provides financial security: The greater your net worth, the easier it will be to overcome financial emergencies and other obstacles. The more cash you have in the bank, the more successful you’ll be at traversing issues like getting laid off or an economic downturn.
3. Allows for risk-taking: A positive net worth allows for more strategic risk-taking, such as changing careers, starting a business, or investing in a particular venture. You’ll have more freedom to pursue your passions without overly worrying about the consequences.
Tracking your net worth
Now that you understand how to calculate your net worth, keep track of it on a monthly or quarterly basis. Keep all of your assets in a spreadsheet so you can consistently update the figures, along with a running total of your debt balances. That way you can easily subtract your assets from your debts to get an updated figure every month.
You can also use a free money management software such as Mint or Personal Capital to automatically calculate your net worth for you every time you log in. Once you link all of your bank accounts, retirement accounts, credit card accounts, and loans, the software will automatically subtract what you own from what you owe and give you an updated net worth.
Improving your net worth
Every time your net worth changes, it either moves in a positive or negative direction. The goal is to improve your net worth over time so you can get out of debt and begin to build wealth. As someone with a positive net worth, you’ll be able to achieve your financial goals sooner and save more money for retirement.
Improving your net worth is not a complicated process, but it is one that will take some time and discipline. Each time you pay off a credit card or pay down your student loans, you increase your net worth. As you pay off debt and continue saving and investing money, the more improved your net worth figure will become.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|