How Net Worth Is Calculated and Great Ways to Increase Yours

These days all you need to do is log onto your favorite social media app and you are bound to see an article about the ever-increasing net worth of a popular celebrity. You may think that you have to be a billionaire to have a network and so you may never bother to calculate what yours may be, however, this is not the case.

 

To explain it simply, if you have assets that you have a calculable net worth. However, calculating your net worth isn’t exactly taught in school and so if you are someone who doesn’t come from an economic background where calculating net worth has ever been necessary, you may find yourself confused. Here are how your net worth is calculated and the great methods you can use to increase yours.

 

As previously stated, if you are someone that owns assets, then you have a net worth. However, it doesn’t just stop at what assets you own. In fact, to accurately calculate your net worth you have to take into account the worth of the assets you own, minus any debt that you owe. In the accountancy sector, this is often referred to as assets minus liabilities. If your debts are at a lower cost than the worth of all of your assets, then you will have a positive net worth. In contrast to this, if you have liabilities that outweigh the worth of your assets, then you have a negative net worth. So don’t rush ahead and believe that you have a high net worth if you have lots of assets, as your debt could easily outweigh what those assets are worth.

 

What assets may you own?

Often one of the main reasons that people don’t bother to calculate their net worth is because they don’t understand which of their possessions classify as assets. This difficulty when it comes to distinguishing between your property and assets is nothing more than a myth, as the process is actually extremely straightforward. If you own an item it is more often than not considered an asset, however, some smaller and inexpensive items are usually not calculated among this sum.

 

Though most items will be considered to be assets, they will not all fall under the same category of assets. To make it easier for you to list your assets it would be useful to learn what types of assets you may own. Here is a definition of some of the most common types of assets.

 

Liquid assets

liquid assets are assets that can quickly be converted into a cash sum. An item can typically be classified as a liquid asset if it can be converted into cash within around a year or sooner.

 

Tangible assets

Tangible assets are physical objects that you own that are worth a substantial amount of money. The most common type of asset that you will find is usually property. Land and buildings also fall under this category, but also so can some of your more expensive personal items. This usually includes assets such as cars, machinery, or expensive electrical equipment. If you are someone that owns items that fall under these categories, then you should make a note of them when working out your net worth.

 

Intangible assets

As you can probably guess by the title, intangible assets are basically assets that are not physical items, unlike tangible assets. Often it can be quite confusing to distinguish which items may fall under this category and this particular kind of asset may not even be applicable to your own personal property. Intangible assets are basic things such as permits, copyrights, and branding. To make it easier to work out whether or not your property falls under this category is to assess it like this: If it does not exist but has worth and creates income, it is an intangible asset.

 

Now that you know what your assets may be, you may also be confused about what a liability is.

 

What is a liability?

To put it plainly, a liability is basically money that you owe. This could be a number of things, like personal debt or even a mortgage. If you do not own something completely and you are paying it via the ‘finance’ method, then this would not be classified as an asset, it would instead become a liability. It is important to minimize your liabilities as they can negatively affect your net worth in the long run.

 

Now that you know what your assets and liabilities may be, you should be in a position where you can calculate what your net worth is. If this still seems confusing to you, that is absolutely fine. You could get an accountant to help you work out your worth or even use the internet to work out your high net worth wealth management at pillarwm or other available sites.

 

How can I increase my net worth?

If you have spare money, one of the best things you could do to improve your net worth is to invest in properties. It is also important to make sure that you only buy assets if you are in a position where you can afford them. If you can’t afford the assets that you purchase, then you will get into debt. Getting into debt will only decrease your net worth and will make the process of improving your net worth much harder.

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