Money Management, Personal Finance

Calculating Your Net Worth: A Guide for Young Professionals

by Modern Money

Summary: Calculating Your Net Worth

Calculating your net worth involves listing your assets (cash, investments, real estate, etc.) and liabilities (mortgages, loans, credit card debt, etc.), then subtracting the total liabilities from total assets. Regularly monitoring net worth helps assess financial health and progress towards goals.

Step-by-Step Guide for Calculating & Understanding Your Net Worth

As a young professional in Canada, taking charge of your financial future is essential. One of the most important financial metrics to understand is your net worth, which offers a snapshot of your overall financial health. In this in-depth guide, we’ll explain how to calculate your net worth, enabling you to make strategic financial decisions and achieve your financial goals.

Step 1: Compile Your Assets

The first step in determining your net worth is to compile a comprehensive list of your assets. Assets encompass everything of value that you own, including:

  • Cash and cash equivalents: Savings accounts, chequing accounts, and physical cash.
  • Registered accounts accounts: RRSPs, TFSAs, RESPs, and other registered investment accounts.
  • Non- registered investments: Stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other securities outside of registered accounts.
  • Real estate: Current market value of your home, rental properties, or any other real estate holdings.
  • Personal property: Estimated value of vehicles, collectibles, jewelry, and other valuable items.
  • Retirement and pension plans: Present value of workplace pension plans, including defined benefit (DB) and defined contribution (DC) pensions.

Step 2: Tally Your Liabilities

Next, enumerate all of your liabilities. Liabilities represent the debts that you owe, such as:

  • Mortgages: Outstanding balance on your primary residence or other properties.
  • Student loans: Remaining balance on your student loans.
  • Personal loans: Any outstanding personal loans, including family loans or lines of credit.
  • Credit card debt: Total balance across all credit cards.
  • Car loans: Outstanding balance on any automobile loans.
  • Other debts: Outstanding medicals bills, taxes owed, or any other debts not listed above.

Step 3: Calculate Your Net Worth

With a clear overview of your assets and liabilities, calculating your net worth is straightforward. Simply subtract your total liabilities from your total assets:

Net Worth = Total Assets – Total Liabilities

  • Example: $700,000 in assets – $550,000 in liabilities = a net worth of $150,000

MM Insight: The median net worth for an individual under the age of 35 in Canada is approximately $50,000. How do you stack up?

Step 4: Assess and Monitor Your Net Worth

Understanding your net worth is just the starting point. Here are some strategies for leveraging your net worth to enhance your financial well-being:

  • Track your progress: Update your net worth calculations periodically to monitor your financial growth and make adjustments to your financial plan as necessary.
  • Establish goals: Use your net worth as a benchmark for setting and achieving short- and long-term financial goals, such as saving for a down payment or eliminating high-interest debt.
  • Optimize your financial balance sheet: Focus on growing your assets and reducing your liabilities to boost your net worth over time. Strategies may include investing in appreciating assets, paying off high-interest debts, or establishing an emergency fund.

By accurately assessing your assets and liabilities, you can make informed decisions about your finances, track your progress, and work towards achieving your financial objectives.

For more informative articles on personal finance, money management and general money knowledge, click here to see the Modern Money Research Teams’ full article portfolio!

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