The net worth of an individual or company constitutes the total assets owned by them. In other words, net worth can also be described as the total value of all the assets owned minus the total value of all the liabilities.
A net worth calculator is a tool that helps to determine the net worth of an individual or company, based on certain inputs. These inputs include the total value of all the assets and the total value of all the liabilities.
An efficient net worth calculator can even ask for inputs specifically for different types of assets like the value of shares and equity, property, gold and jewellery, cash and bank accounts, etc. or the various types of liabilities like home loans, personal loans, income tax owned, credit card dues, etc.
Let us know in detail how to calculate the net worth using a net worth calculator.
How to Calculate Net Worth
The net worth can be calculated for any company, group, individual using a simple formula. Every individual or company owns resources that are either responsible for bringing in financial benefit for them or drain it out.
Hence, the difference between the total value of assets and liabilities yields the net worth. The formula for calculating the net worth is mentioned ahead in detail. With the help of it, you can calculate the net worth of any individual or company provided that you have the relevant information about their assets and liabilities.
Net Worth Calculation Formula
The measurement of net worth is based on a simple formula that includes the total value of assets and the total value of liabilities of an individual or company.
Net Worth Calculation Formula is as stated below:
Net worth = [Value of Asset 1 + Value of Asset 2 + Value of Asset 3 + Value of Asset N] - [Value of Liability 1 + Value of Liability 2 + Value of Liability 3 + Value of Liability N]
Let us understand this formula in detail:
- Assets:While calculating the net worth, all the sources of income or ways that yield a financial benefit will fall under the category of an asset. This can include resources such as a property, rented home, shares, etc.
- Liabilities:Contrary to assets, liabilities are all such sources that result in the drain of financial resources. These can either be basic necessities or pleasure-giving materialistic things. Ideally, liabilities can include fees, taxes, loans, etc.
Hence summing up all the assets as well as the liabilities separately and then calculating the difference between them will ultimately yield the net worth of an individual or company.
Net Worth Calculation Example
Now that we know the formula for calculating net worth, let us understand it more clearly with the help of an example.
Let us consider that Mr. A is a businessman who owns a bunch of assets and liabilities.
Here is the list of all the assets that he owns and their value.
- Rented Property: Rs 5,00,000
- Shares and Funds: Rs 7,00,000
- Farming Land: Rs 15,00,000
Whereas, here are all the liabilities that Mr. A owns and their respective values.
- Outstanding Loan: Rs 4,50,000
- A tax due: Rs 1,25,000
Using the formula mentioned above to calculate the net worth of Mr. A, here is what we can derive.
Net Worth of Mr. A = [5,00,000 + 7,00,000 + 15,00,000] - [4,50,000 + 1,25,000] = Rs 21,25,000
Hence, as of today, the total net worth of Mr. A will be Rs 21,25,000. This is how to calculate the net worth of a person.
However, the net worth does not remain the same and keeps on fluctuating. It can be assumed that five years later Mr. A has added more assets and liabilities to his portfolio or vice versa. In such a case, the net worth of Mr. A might increase or decrease five years later depending on his assets and liabilities.
Benefits of Net Worth Calculator
The net worth calculator is an excellent tool that helps to track down one’s financial status. Here are some primary benefits that the net worth calculator brings with it.
- A net worth calculator comprehensively lays down a complete summary of your financial status. It helps you track down your assets and liabilities all in one place and gives a clear overview of your overall financial health.
- With the help of a net worth calculator, you can keep constant track of your financial status over time. You can constantly calculate your net worth over time, and take necessary steps to boost it.
- A net worth calculator can also help you set your own financial goals. Since, based on your current net worth you can assume a desired net worth in the years to come and work accordingly to achieve it.
- A net worth calculator can also help you keep a constant track of your assets and allocate them in a manner to reduce risks.
- With the help of a net worth calculator, you can create assumptions for your future and accordingly plan for retirement.
Hence, a net worth calculator is a powerful tool that comes loaded with a lot of benefits. It not only gives you an insight into your financial status but also helps you improve it by helping you make informed decisions.
Disclaimer
In a nutshell, a net worth calculator is a tool that can be of great help to manage your finances efficiently. However, it becomes necessary to ensure that you include all your assets and liabilities while calculating the net worth using a net worth calculator.
Keeping a constant track of your net worth with the help of a net worth calculator will also help you to progress constantly and attain your desired financial goals in the future.
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