{"id":1696,"date":"2012-05-02T19:16:14","date_gmt":"2012-05-02T23:16:14","guid":{"rendered":"http:\/\/canadianbudgetbinder.com\/?p=1696"},"modified":"2025-02-25T08:15:39","modified_gmt":"2025-02-25T08:15:39","slug":"how-we-calculate-our-net-worthnow-calculate-yours","status":"publish","type":"post","link":"https:\/\/digitalskyweb.co\/canadianbudgetbinder.com\/2012\/05\/02\/how-we-calculate-our-net-worthnow-calculate-yours\/","title":{"rendered":"How We Calculate Our Net Worth"},"content":{"rendered":"\n

<\/span>Estimated reading time: <\/span>4<\/span> minutes<\/span><\/p>\n\n\n\n

Learn how to calculate your net worth and gain insight into your financial health. <\/p>\n\n\n\n

Understand the significance of assets and liabilities in determining your overall wealth.<\/p>\n\n\n\n

Today, I’m going to share with you the basics of calculating your net worth without any fancy finance jargon.<\/p>\n\n\n\n

Understanding Net Worth <\/h2>\n\n\n\n

What is net worth?<\/strong><\/p>\n\n\n\n

A straightforward definition for net worth is that it is a simple calculation where you add up all the things you OWN, which is also called an “Asset,” and minus the total of everything you still owe, also known as a “Liability.”<\/p>\n\n\n\n

Net Worth = Assets – Liabilities<\/strong><\/p>\n\n\n\n

Net Worth Determination<\/h2>\n\n\n\n

How to determine net worth<\/strong><\/p>\n\n\n\n

Items like your house value<\/a><\/strong> and the current value of cars if sold today, but remember, cars depreciate over time, meaning they will always be worth less.<\/p>\n\n\n\n

Any investments you have, such as TFSAs, RRSPs, non-registered investments, stocks, bonds, work or private pensions, and cash in the bank, are all assets. <\/p>\n\n\n\n

Assets can be liquid cash <\/strong>or less liquid<\/strong> items such as bricks and mortar (house); less liquid items would have to be sold to generate some money.<\/p>\n\n\n\n

Liability <\/h2>\n\n\n
\n
\"How<\/figure>\n<\/div>\n\n\n

What is liability?<\/strong><\/p>\n\n\n\n

Then, add all the things you still owe money on, like your mortgage<\/a>,<\/strong> car loan, line of credit, etc. <\/p>\n\n\n\n

All these are called Liabilities, <\/em><\/strong>which means you are still liable for them. <\/p>\n\n\n\n

In other words, they still need to be paid whether you have a job.<\/p>\n\n\n\n

After working out my Net Worth, what will it do for me?<\/strong><\/p>\n\n\n\n

Calculating your net worth<\/strong> <\/a>will give you a general idea of your financial well-being. <\/p>\n\n\n\n

Negative Equity <\/h2>\n\n\n\n

What is negative equity?<\/strong><\/p>\n\n\n\n

If you own<\/strong> more than your OWN,<\/strong> it shows you are in “Negative equity.” <\/em><\/strong><\/p>\n\n\n\n

Generally, negative equity is not desirable because if you had to sell everything tomorrow and live in a cardboard box, you’d still owe money to someone or another.<\/p>\n\n\n\n

For instance…<\/span><\/h5>\n\n\n\n

You’ve racked up $20,000 in debt<\/strong> and decided to do a consolidation loan<\/strong><\/a> where the debt is added to the mortgage. <\/p>\n\n\n\n

The original mortgage was $190,000,<\/strong> and the house is worth $200,000<\/strong>. <\/p>\n\n\n\n

Now, you’re in a state of negative equity<\/strong> on the house.<\/p>\n\n\n\n

If you get into dire straits and sell the house to clear more debt, you’ll still be $5,000 short<\/strong>.<\/p>\n\n\n\n

It will cost you 5% or $10,000<\/strong> to sell it (real estate agent) and the lawyer’s fees. <\/p>\n\n\n\n

Now, selling the house still leaves you at least $15,000 in debt<\/strong>. <\/p>\n\n\n\n

So, what else do you want to sell?<\/p>\n\n\n\n

Spending More Or Less Than You Earn<\/h2>\n\n\n\n

Tallying up a statement of net worth regularly can also indicate if you’re spending more than you earn, as your negative equity will increase. <\/p>\n\n\n\n

Think of your finances as a business; you don’t want to operate at a loss; you want to profit.<\/p>\n\n\n\n

For the most part, most people’s net worth should increase over time due to paying down the mortgage and the increase in property value<\/a>.<\/strong><\/p>\n\n\n\n

Our finances may be different if we had better cars or maybe if we had a bigger house, but that wasn’t our goal to have more than we could afford. <\/p>\n\n\n\n

Living below your means<\/strong> is one key budgeting strategy and how we saved enough to become mortgage-free in 2013<\/a><\/strong>. <\/p>\n\n\n\n

Understanding personal net worth is worth the time you spend investing in your future.<\/p>\n\n\n\n

Discussion:<\/strong> Have you ever calculated your net worth before? <\/p>\n\n\n\n

Please leave your comments below. <\/p>\n\n\n\n

Thanks for reading, <\/p>\n\n\n\n

Mr. CBB<\/p>\n\n\n\n

P.S.- You can catch up on our monthly Net Worth updates<\/a><\/strong> on the blog if you missed them. <\/p>\n\n\n\n