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Business // Thinking Smart
David S. Chang

How To Calculate Your Net Worth

Each year, Forbes magazine lists the 400 richest people in the world. Bill Gates is the richest American 20 years running, and has reclaimed the title of world’s richest person from Mexico’s Carlos Slim with a net worth of $72 billion. At No. 2 again is investment guru Warren Buffett, who was also the year’s biggest dollar gainer by adding $12.5 billion to his net worth.

The youngest on the list is Dustin Moskovitz (29), former roommate of Facebook founder Mark Zuckerberg (29), who is worth $5.2 billion from his 5 percent stake in the social media company. Zuckerberg, who owns 17 percent of Facebook, grew his wealth by $9.6 billion, putting him back in the top 20 with $19 billion.

How do they calculate the world’s richest people, and how much do you need to be on the list? The minimum net worth needed to make the current list is $1.3 billion, and the average net worth of the list members is $5 billion — $800 million more than last year!

While most of us will not be on the list, we can all calculate our own net worth. Net worth is a calculation of how much a person’s assets are worth after their debt or liabilities is subtracted.

* Net Worth=Assets-Liabilities

Unlike a budget, which is a continuing estimate of your income and expenses, your net worth statement is a snapshot in time. Your net worth evaluates your financial health and helps you understand what you need to do to bring down debt, increase your assets and reach your financial goals.

* Calculating Your Assets

Your assets are everything you own that is worth something. It is all the cash, investments, real estate, business assets and personal property that you have. In calculating assets for their list, Forbes goes through SEC documents, records, financial disclosures, Web and print stories. They take into account all assets: stakes in public and private companies, real estate, art, yachts, planes, ranches, vineyards, jewelry, car collections and much more.

Calculating assets, however, can be tricky. Some assets are difficult to appraise to find their market value. Stocks, bonds and cash are easy to figure out, since the market value is published daily. However, the value for privately held companies, art and car collections, and collectibles like coins or stamps, can be more difficult.

How do you know if something is an asset? If it isn’t worth appraising or if you can’t sell it for money, it probably isn’t an asset. Also, your income and wages are not assets.

* Calculating Your Liabilities

This is a total amount of money you owe. It can be student loans, mortgages, car loans, credit cards, tax bills or any personal loans. Monthly bills don’t count, unless you are behind on paying them, and neither do services you pay for that are voluntary, like insurance.

Hopefully, after you subtract your liabilities from your assets, you have a positive number! If you have more than $1.3 billion and can make the list, congratulations! To download a net worth template, visit artofthinkingsmart.com/smart-financial-plan.

david@artofthinkingsmart.com

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