How To Track Your Net Worth And Why It’s Important02 Sep 2021
Your net worth refers to the difference between your assets and liabilities.
It provides a big picture view of your current financial situation - think of it as a financial report card that allows you to evaluate your current financial health, and helps you figure out what you need to do to reach your financial goals.
Source: Money Life Wax
How to calculate your net worth
You can do this in three easy steps.
Add up the total value of all your assets.
Your assets are resources that have economic value with the expectation that they will provide future benefits. Examples include any cash you have on hand, investments, your bank accounts, retirement funds, equipment, real estate, vehicles, as well as personal items such as jewellery.
Add up the total amount of all your liabilities.
Your liabilities refer to your debts, which includes your mortgage, car loan, student loan, credit card bills, medical bills, and any other debts that you currently have.
Subtract your total liabilities from your total assets. For example, if you have RM150,000 in assets and RM20,000 in debts, you would calculate it as RM150,000 minus RM20,000 to get your net worth, which is RM130,000.
If your assets exceed your liabilities, you have a positive net worth. On the other hand, if your liabilities are greater than your assets, you have a negative net worth.
An important thing to note when calculating your net worth: do aim to be conservative with your estimates, especially when it comes to large assets such as your home and vehicles. This is to prevent inflating the resulting value because that won’t be an accurate reflection of your net worth, even though the high value looks good on paper.
Many people are not aware of what their net worth is. There is great value in spending some time to find out, as it can make a big difference in your long-term financial health.
One way to protect you and your family’s net worth is with life insurance. Knowing your net worth can help you determine how much life insurance coverage you need. This will ensure you avoid paying excess premiums, giving you extra cash which you can put to good use for other purposes such as your emergency fund.
Once you have determined your net worth, you can use our life insurance calculator to find out how much coverage you need.