Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to AskKaren@mpt.org and post your comments below.

8

October

What You Need To Know About Your Net Worth

Karen Gibbs

net worthKaren, what is my net worth and how do I calculate it?
    Oscar, Silver Spring

Oscar, simply put, your net worth is what you own minus what you owe.  If you ever apply for a mortgage, car loan or if you’re thinking of a major life-changing event such as marriage, this is a number you should know.

To calculate your net worth, start with your assets.  List your checking account balance, savings and other cash on hand readily available.  Add to that your investments in stocks, bonds and retirement accounts. 

Now list your property, both real and personal.  Do you own a home?  Subtract the mortgage from the current market value – you want that number to be positive (not underwater).  Add the Kelley Blue Book value of your car, plus the value of items in your home.  Clothes, furs, furniture, jewelry, china, silverware, electronics all count toward your net worth.  Do you have a stamp or coin collection?  Add the after tax-value of those collections.

Do you have a part interest in a business?  That interest is considered part of your net worth.  The total value of all of you own is the asset side of your equation.  I would be conservative in estimating the value of these assets

Now list all the debts you owe.   For most of us, our mortgage is our biggest liability, followed by student loans, credit card debt and auto loans.  Include any personal loans you have and don’t forget Uncle Sam.

Now subtract the amount you owe from your total assets.  The number you get is your net worth – positive or negative – and is a reflection of your personal financial health.  Using this figure as a bench mark, you can now develop a plan to improve that number.

If you have a negative net worth, start now to reduce your debt.  Along with making more than the minimum payment, see if you can reduce the amount of interest paid.  Look for balance transfer deals that don’t charge a fee, and don’t make additional charges.

Do you have items you don’t use and could sell for cash?  Apply that to the debt and watch that debt disappear.
   
Can you increase the amount you save?  Can you improve your rate of return on investments?  Don’t ignore the magic of compounding.  But saving as much as you can as early as you can, your money works for you.

Calculate your net worth at least once a year and make sure you’re moving in the right direction.  It’s a perfect example of smart thinking about your money.

Good luck!

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