How to Calculate Your Net Worth: The No-Jargon Guide | Your Mortgage Guide

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How to Calculate your Net Worth: Non-Jargon Guide

Your net worth is the difference between what you own (your assets) and what you owe (your liabilities).

Your net worth is either positive or negative. Understanding your net worth will help you plan for the future. If you’re looking to invest in real estate, you need a positive net worth that is always growing.

Your net worth as your financial report card. It evaluates your current financial health and can help you make the right decisions to achieve your financial goals.

Assets

An asset is anything of value or a resource of value that can be converted into cash, which you own.

Here’s a list of common assets people own:

  1. Cash and cash equivalents: Cash, chequing and savings account balance, Tax-free savings accounts (TFSA)
  2. Property: Real estate property such as home, rental property or land
  3. Personal property: Vehicles, boats, collectibles, household furnishings, jewelry etc.
  4. Investments: Retirement savings (RRSP), the cash value of life insurance policies, guaranteed investment certificates (GIC), pension plans, mutual funds, annuities, stocks, bonds, etc.

Be careful when declaring cash because the lenders are required to inquire about the source of funds and you will be required to show a paper trail for everything.

Liabilities

A liability is an obligation to, or something that you owe somebody else. In this case it’s a financial debt.

Here’s a list of common types of liabilities:

  1. Mortgages: Home mortgage, HELOC (Home Equity Line of Credit)
  2. Credit: Credit cards, lines of credit
  3. Loans: Auto loan, student loan, personal loan

Negative Net Worth

A negative net worth doesn’t necessarily mean you’re financially irresponsible; it just means that – right now – you have more liabilities than assets.

And it’s time to get to work on turning that around.

Challenges with Net Worth

One of the challenges in calculating your net worth is assigning accurate values to all of your assets. It’s important to make conservative estimates when placing value on certain assets in order to avoid inflating your net worth.

You need to have an accurate view of your net worth. Don’t lie to make yourself feel good.

Your home (and other investment properties you own) is probably your most valuable asset and can have a significant impact on your financial situation. If you’re not sure what your home is worth, send us an email and we will send you a report on selling price of comparable properties in your area.

If you already know what your property is worth, you can calculate your property’s available equity by clicking through our equity analyzer.

Since everyone’s financial situation and goals are unique, it’s difficult to establish one “ideal” net worth for everyone. Instead, you need to determine your ideal net worth – where you want to be in the near-term and long-term future. We are simply looking for an ideal number that works for you.

Why Your Net Worth Is Important

Your net worth statements are a reality check and force you to confront the realities of your financial health.

Reviewing your net worth statements over time can help you determine:

  1. Current situation (where you are)
  2. Ideal situation (where you want to be and how to get to it)

It will encourage you if you’re headed in the right direction or provide a wake-up call if you’re not on track.

The Bottom Line

Knowing your net worth can help you evaluate your current financial health and plan for your financial future. By knowing where you stand financially, you will be more mindful of your financial activities, better prepared to make sound financial decisions and more likely to achieve your short-term and long-term financial goals.

How does your Net Worth Affect You?

Lenders are always looking for positive net worth, and you can borrow money easily and at a lower interest rate.

When you have a history of your net worth statements growing over time, showing consistent growth, it shows that you have your financial health under control. And, in case there’s a drop, you can address the drop and move on.

If you’re not able to secure a mortgage for your new real estate investment, we can help you by reviewing your net worth statement and connecting you to the right lenders.

INCREASE YOUR NET WORTH

Have a home? Make your mortgage an asset and add to your net worth.

Explore Mortgage Management Plan