Net worth has always been something that’s very much affiliated to billionaires on the Forbes list. We see it as the metric and yardstick for measuring the assets of only the billionaires, successful icons, and the creme dè là creme.
You either argue with friends about the net worth of these successful icons and billionaires, without coming to terms with the fact that irrespective of your social status as an entrepreneur you have a net worth.
So, knowing how to calculate your worth as an entrepreneur is an advantage and it keeps you in check. Rather than channel all your energies to arguing about the net worth of these successful icons, how about you focus on calculating yours and looking for ways to grow it.
What Is Your Net Worth
Your net worth is one very useful tool in measuring your financial health and gauging your economic status as well as your overall financial progress from year to year.
In a nutshell, it makes you take a look at what you own, with respect to what you owe. But, in a bid to truly know what you own, you have to factor in what you owe.
Your net worth is essentially a grand total of all your assets minus your liabilities. In other words, simply subtract your total liabilities from your total assets. It doesn’t matter how big or how small the number, what you get after the deduction is yours. It also should not worry you if this number is in the negative.
As an entrepreneur, it helps you in understanding your current financial situation. More so, it gives you a reference point for measuring progress toward your goals as an entrepreneur.
Calculating your net worth should be a regular exercise and, as you continue to earn and save, it will continue to grow. Hence, the need to recalculate it once or twice annually. However, if it is low or in the red, you need to work on saving more and spending less.
How To Calculate Your Net Worth
When it comes to calculating your net worth, you don’t need a rocket science calculation. It is just a simple process that requires you to gather all the information hovering around your current assets and liabilities.
Calculating Your Total Assets
What is an asset? You need to understand what assets before you can calculate them. Simply put, assets are the things that add money to your bank account. In calculating your assets you need to consider the following:
- First, you need to list everything you own that has substantial value. However, in as much as this includes some intangible assets like your investment accounts, it does not include your salary. This is based on the fact that your income is part of your cash flow and not your net worth as an entrepreneur.
- The current market value of your home, if you own a real estate.
- Also, you want to list other personal items that may be of great value, especially items that cost an arm and a leg. These items cut across your valuable jewelry, coin collections, luxury assets, a rare wine collection, musical instruments, etc.
- The cash value of your insurance policy, retirement accounts, investment accounts, savings account, crypto-assets, etc.
Now, take all of the listed assets and add them up to form your total assets.
Calculating Your Liabilities
Liabilities are a different ball game as they take money from your bank account. To calculate your liabilities, you have to consider the following:
- One thing you want to start with is your loans. List these loans, ranging from car loans, house loans, company loans, etc.
- Any outstanding tax liability.
- Bank overdrafts, or anything you owe your creditors or lenders, etc.
Now, your total liabilities are the summation of all the balances on all of the liabilities you listed.
Calculating Your Net Worth
After getting the values of your total assets and your total liabilities. Then, your next move should be subtracting your liabilities from your assets:
Assets – Liabilities = Net Worth
The number you’re left with is your net worth, no matter how little or how high it is. However, as an entrepreneur it’s good you know that your net worths are snapshots of time; because they fluctuate as time goes on. Therefore, you need to keep reevaluating your net worth – probably once or twice yearly.
As entrepreneurs and great readers of Entrepreneurs.ng, have you ever calculated your net worth or deemed it fit to calculate it prior to this article? Let us know in the comment section below.
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