Anyone that has ever taken any accounting course from the most basic to the most advanced, should be able to recall the basic accounting principal:
Assets = Liabilities + Shareholder’s Equity
That’s the heart and soul of double entry accounting. Now while this applies to a business, as we can see from the term “Shareholder’s”, we can translate this into our personal life as well.
Assets = Liabilities + Personal Equity
Using the above equation that is now meant for an individuals personal equity, or essentially, Net Worth – then we can rearrange the formula to isolate Net Worth. The new equation would then look like this:
Assets – Liabilities = Net Worth
That’s it! It’s that simple. All you need to do to calculate your net worth is list out the value of all of your assets and subtract the value of all of your liabilities. Unfortunately in this century, the number is negative for a lot of people. They simply borrow more than they have in value to pay it back. We can get into these reasons and how borrowing works in general in a later post.
Now that we know how to calculate Net Worth (simplistically, as a lot of the calculate comes down to determining what counts and what doesn’t and the subjectivity around that), we can begin to understand the tools of the trade to grow that number. Even if your goal is just to get that number greater than 0, our website can help! Stay tuned for more great posts from the industry’s leading experts.