Determining your net worth is the first step in most financial planning processes. If you want to have a better financial future, then you must learn how to make a good financial plan for your future. In order to do so, you must learn how to determine your net worth first. By knowing your net worth, you can understand how well you have achieved in your personal finance and hence set some financial goals to improve. You have to find the right treatment to cure it by knowing the illnesses in your body.

Calculate your Net worth

Theoretically, it is very easy to calculating your net worth. The process consists of three steps:

1. List your assets with values
2. List your liabilities with values
3. Subtracts your liabilities from assets and the result is your net worth.

So the Formula is: Assets – Liabilities = Net Worth

How to Collect the Data for your Assets and Liabilities

Yes, the calculation is easy and the formula is just a simple mathematic formula. Even a 3 years old boy can calculate it, if you provide the figure for him.

However, before you can use this formula, you have to collect all the information about your assets and liabilities. I think this is the hardest part which is also the reason why people never calculate their net worth. Actually you don’t have to make it so complicated. All you have to do is just follow some simple steps.

Below are the simple steps to collect the data:

1. First of all, please go to CNN Money and get ready the Net worth calculator. Don’t worry it is free.
2. Fill up the “stocks and stock fund” and “bonds and bond funds” column with relevant value. You can get the value from either your brokers or from financial pages in local newspaper.
3. Login to your online bank account and get the figure for “Cash” columns.
4. Determining the current value of retirement accounts may be more difficult. You have to determine the current value of your retirement accounts and also including the estimated taxes you have to pay upon taking out the money. You can read this article to find out more details of the process.
5. Home is the biggest asset for most Americans. The figures you are going to fill for “Value of primary residence” and also “Vacation property / second home” are the property’s current market value. You can find a real estate brokers to help you on this section.
6. You can use the same method of step 5 and look for an expert to estimate how much it worth for your “Art, Collectibles, jewelry, furnishings”.
7. I think all the fields under the debt section are quite straight forward. Just take out your statement or login to relevant online bank account and you will get the accurate figure for them.
8. Finally you get your net worth figure! Congratulation!

How to increase your net worth?

Now you have your net worth figure. Below the calculator, there is a chart showing you the percentage of household according to certain level of net worth. Which group are you in?

Not really satisfy with the result? Don’t worry, net worth can be increased from time to time. There is a number of ways to increase net worth:

• Appreciation of assets such as a rise in the value of stocks or properties. Of course, first you must own some assets.
• Reducing your liabilities. In other words, reduce your debts such as credit card debts, loans etc. I think this is the most simple and direct way to increase your net worth.
• Increasing your income and invest them to own more assets. This is how wealthy people get wealthier.
• Reducing your living expenses and live below your means. This is temporary. What I mean is we should have a lifestyle that never put our personal finance at risk. If you make $100k each year, then you must have a lifestyle that only cost you $60k annually or something below it. 

Conclusion

Final tips for you: Net worth can be a financial goal for you. For example, you want to have a total net worth of 1 million in 10 years time. So you have to figure out how you can make more money and invest them. At the same time, you live below your means and pay off all your debts so that you can increase your net worth in the fastest way.

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