How to Calculate Your Personal Net Worth
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How to Calculate Your Personal Net Worth

Why do you need to know your Net Worth

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How to Calculate Your Personal Net Worth
1. What is your Net Worth?
2. Why do you need to know your Net Worth?
3. What are the 5 Steps to Calculating Your Net Worth?
4. How do you calculate your personal net worth?
5. A Practical Example of Personal Net Worth Calculation


What is your Net Worth?

This is the total value of everything you own minus the total debt you owe. The easiest way to calculate your net worth is to add up everything you own and everything you owe and then subtract the debt from the assets.You can set your net worth to $100,000 and keep track of your progress each month. Let's say your total assets and total debts are $300,000 and you owe $300,000. Your net worth is the total value of those assets minus the total debt you owe.

Why do you need to know your Net Worth?

A lot of people don't know their net worth or don't know how to calculate it. When you don't know your net worth, you can't control it.Self-made millionaire and author of "My Hobby Is Helping Working Class Millionaires Like Me", Tom Kennedy, shares his net worth story with Entrepreneur Magazine here: Wealthy people tend to be secretive about their net worth because it's an indication of their net worth. Most people's purposeful investing is to avoid paying taxes. If you don't have a high rate of return on your investments, you may have to pay a higher tax rate than somebody with a 20% rate, even though the rich person still has a large percentage of his or her income going to investments. Personal net worth shows that you have enough money to withstand temporary excesses. That's the best financial indication you could have. 2. How to Calculate Net Worth? The key to financial success is disciplined day-to-day investing and long-term goals. To develop day-to-day financial discipline, tracking your bank accounts and investments is essential. Important financial goals for entrepreneurs and business owners include: If you track your investments (no commission involved), you will be able to see your net worth grow over time. You'll know if you need to change the way you invest and how your product is doing. By keeping track of your finances, you can hedge your bets to get a bigger gain or avoid a loss. You will have more financial discipline over the long-haul. It will also give you a place to vent about your financial situations. 3. Illustrate the difference between "wealth" and "income." The most common way of gauging one's wealth, according to Forbes, is the 10x rule. The rule of thumb is to double the money you have every year by purchasing a new investment. Illustrate how this will help you earn more money and build wealth

What are the 5 Steps to Calculating Your Net Worth?

1. List all of your assets.
2. List all of your liabilities.
3. Subtract your liabilities from your assets.
4. Determine if your net worth is positive or negative.
5. Calculate your net worth on an annual basis.

How do you calculate your personal net worth?

Your personal net worth is calculated by adding up all of your assets, like your home, car, business, investments, etc., and then subtracting all of your debts, like your mortgage, credit card debt, etc. A good rule of thumb is that your total assets should be worth about three times more than your total debts.(This calculation assumes no income you haven't already built into the calculation.) You should be able to afford to put down 0% of your total assets to build in debt. After your assets stack up, your income should be enough to cover your debts. This means assets should make up at least 33 percent of your overall income. Income can come from both past income and future income. You can track your past income in many ways, such as cash on hand and cash flow cards, but cash flow is the most reliable income trackers in my opinion. How Much Do You Need to Live the Life You Want? A key question here is whether or not you can possibly live the lifestyle you want—or a lifestyle substantially better than the one you currently live. That might require huge increases in income and/or investments, or it might simply mean that lifestyle is significantly better than the one you currently enjoy. You probably have some idea of what you probably want, either from past experience (since you've lived it once or done it once) or from looking around at what people are doing right now. But how much better can one lifestyle be than another? The margin for improvement is significantly greater when considering one lifestyle over another.

A Practical Example of Personal Net Worth Calculation

Here is an example of how your personal net worth is calculated. Let's say you have $10,000 in your savings account, $50,000 in your 401(k) account, $40,000 in your brokerage account, $15,000 in your checking account, and $10,000 in your car.(Now you understand the meaning of passive income!) If we assume you made a 4% return on your money each year (which in my opinion is ridiculous), that would mean your net worth is $400,000. You may have a few properties as well if you purchased one with your personal funds. What if you held onto a rental property for, let's say, 12 years? That would mean your total net worth would be $1,600,000! And hey, was that just for return on investment? Perhaps my favorite part about passive income is that you don't have to worry about losing it. How much did you lose on your real estate investment in one year? Was it negative? Heck if I know! If you've ever lost money on your investments, you know just how painful it can be to ask yourself, "What if I just would have held onto that property?" 2. What Is a Passive Income Strategy? Well, passive income strategy usually refers to a method of turning investments into income streams instead of just making payment on investment opportunities directly every month. Passive income strategies work on investments that produce income over a period of time and invest the combined income into other investments or interest-bearing savings accounts to protect your principal. Self-directed accounts or retirement accounts are the most common examples of passive income vehicles. Wikipedia defines the term as passive income as "something produced on an ongoing basis through the efforts of an employee or independent contractor." Passive income strategies work by using investments to generate a profit and then reinvesting that profit into more investments that produce even more income.

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