Understanding your Net Worth

You may have heard Net Worth spoken about in the financial world, however I bet you’re wondering why it is such an important exercise. The first step is to understand how your net worth is calculated.

How is your Net Worth calculated? Simple!

Add up all of your assets:

1. All investment assets: RRSP, TFSA, RESP, Non-Registered, Savings accounts, GIC’s, etc.

2. All property: Home, Cottage, Rental property, land, etc.

3. Personal Property: Art, jewellery, cars, other artifacts of significant value

4. Include the value of your ownership share of any corporations or businesses

Then subtract everything you owe:

1. All debts: mortgage, line of credit, personal loans, car loans, credit cards, etc.

2. Any personal debts, be it for personal purchases or for business

3. Student loans

Assets – Liabilities = Your Net Worth

Now that you understand your net worth, you’ve effectively created a starting point in your financial journey. Ideally you have a positive net worth meaning your assets are worth more than your debts, but sometimes you may come out of this calculation in the red, and that’s OK! Don’t let the red scare you as it’s simply a tool to understand your current financial situation. You will want to look at your net worth on a regular basis, such as annually, to determine if you are on the right track financially. If your net worth is moving in the wrong direction, it means that it’s time to re-evaluate your income vs. obligations and make changes.

Recommendation: Do take the time to update your net worth annually to keep on track to your financial goals.