Your net worth is defined as your assets minus your liabilities. Over time, assets can increase in value and liabilities can decrease, so your future net worth could be considerably more than it is today. Here's a useful calculator to determine your projected net worth using hypothetical growth rates of your assets.
What is your net worth?
Your current net worth can be found by adding up your liabilities (debts) and subtracting them from your assets (the things you own). For example, if you own $500,000 worth of houses, cars, and investments, but owe $200,000 in debt, your net worth is $300,000.
In general, the assets that are included in your net worth calculation include:
- Homes (Primary residence, vacation homes, and investment properties)
- Cars and other vehicles
- Art, jewelry, and other valuable possessions
- Investments – stocks, bonds, etc.
- Businesses you own, or have an ownership interest in
- Cash (savings accounts, checking accounts, CDs, and other)
Simply put, these assets are either cash, or things that have a relatively high value and can be converted to cash in a fairly predictable manner. You can sell your house or vehicle for close to its market value, and you can liquidate your stocks and bonds whenever you'd like, just to name a couple of examples.
On the other hand, smaller assets and things that can't realistically be sold easily aren't usually included. For example, I could probably sell the books on my bookshelf for a hundred dollars or so, but this isn't a predictably valued asset, nor is it worth a significant amount of money (relative to the items on the list above), so I wouldn't include it in my calculation.
Liabilities are a bit more straightforward. In other words, mortgages and other debts have set balances that you owe. When calculating net worth, be sure to include all of the following:
- Car loans (including unpaid lease obligations)
- Bank loans
- Personal loans
- Credit card debt
How to estimate your future net worth
Over time, the value of your assets can change, and as you pay down your loans, so can your liabilities. For this reason, your net worth can change (hopefully increase) over time. Here's a handy calculator that can do the math for you and help you project your future net worth.
There are a few things to point out about the calculator. First, it's important to be realistic when predicting the growth rates of your asset values. For reference, here are the historic growth and decay rates of certain assets:
- Real estate – 3% to 4%, depending on what data you're looking at
- Stocks – 9% to 10%
- Bonds – 5%
- Cars and other vehicles – Negative 10% to 12% per year
For other tangible assets, such as artwork and jewelry, for instance, it's fair to assume that they will increase in value at the same rate as inflation, which has historically been in the 3% neighborhood.
When it comes to liabilities, it's a little trickier. For a mortgage, you can look at your amortization table and see how much of your loan will be repaid over the next few years. Or you can simply divide the loan balance by the remaining term to estimate the decline percentage. For other loans, use your best judgement. The calculator only allows for inputs of up to 12% annual growth or decline, and if you plan to pay off your debts more aggressively, it would have an additional positive impact on your future net worth.
Additionally, it's also important to mention that this calculator assumes that you won't add any new assets or liabilities into the mix. For instance, if you plan on buying an investment property in a couple of years, it could have an impact on your future net worth that isn't reflected here.
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