Net worth is the value of everything you own. This includes both your financial and non-financial assets excluding the total outstanding liabilities – your debts. Knowing your net worth can be of great use as it indicates your financial health status and allows you to act on it. For example, if your net worth is negative, you will be able to better plan your finances in the future. Here’s how to calculate your net worth:
Step 1: Calculate the value of your assets. This includes cash sum, investments, properties, account savings and your Employee Provident Fund (EPF).
Step 2: Calculate the total sum of your liabilities. Examples of liabilities are mortgages, credit card balance and loans.
Step 3: To calculate your net worth, simply subtract the value of your assets to your liabilities.
Total Assets – Total Liabilities = Net Worth
But knowing your net worth isn’t sufficient. You should set a net worth retirement goal. To find out your ideal net worth for your current age:
(Current age) x (Annual income ÷ Number of years until you retire) = Target Net Worth
Identifying your net worth goal will help you to plan and save up for your retirement efficiently. Here is an example of calculation to get you going: 35 x (120,000 % 25) = RM168,000. Are you close to the target net worth for your age, or still have a long way to go? Should you start reducing bad debt, or invest more to increase your net worth? Whatever the answer may be, you now have a better idea on how to move your finances forward from today onwards.