The first thing to do is make a list of everything that you (or you and your partner) own which has resale value. By that, I mean anything that is an asset. You might own five thousand books, but if they were all bought second hand in charity shops you will not be selling them on for much. In this case, you shouldn’t count them.
Assets might include any of the following:
– Property (residential, commercial or land)
– Cash in the bank
– Shares in stock market quoted companies
– Hard assets (gold, silver, diamonds, etc)
– Collectibles (antique art, furniture, etc)
– Unit trusts or mutual funds
– Shares in unlisted companies (perhaps a family firm)
– Corporate or government loans (known as bonds)
– Pension funds
The list may be big or small, only you know. Take your time and try to think of everything you can.
I would now like you to put a value next to each asset. This value will be either the amount that you think the asset is worth (for example art is very difficult to value) or, in the case of quoted assets such as shares, the real value. If you need to find a value, just check in the daily papers or online.
The one major problem area here is property. Generally, the biggest asset any of us own is our residence. But what is it worth? Equally importantly, since we all need a place to live, and would need to buy elsewhere should we sell, why include it in the list?
My thinking on this subject is yes, you should include it in the list. We will do this for two reasons. Firstly, if you have a mortgage against the property, the mortgage is a big part of your budget and planning. If we are to include the debt (and we must) then we might as well include the asset too. It will make you feel better! Secondly, if you are flattened by a lorry next week and die, you can bet that the tax man will be including it as an asset in your estate.
Property is a problem asset for a second reason. Since we have presumed that it will be your largest asset it will make a big impact on your balance sheet. However, you don’t truly know what a property is worth until you put it on the market and try and sell. This will make your balance sheet rather weighted towards an asset that we cannot really appraise.
With a little luck, you now have a long, long list of assets and valuations. Add them together and find out how much you own. I hope, for you, it is an impressive number that will make Donald Trump jealous.
As I’m sure you can now guess the other side of the net worth coin is how much you owe. Do you have any debts? Do you know how much they cost you (monthly) and how much you owe? Can you name the lenders?
To get a clear idea of your situation, a list will (if you have a lot of debts) need to be made of companies, payments and balances. In calculating your outgoings, any debt repayments were listed.
Once this list is complete, simply minus the debts figure from the assets and you are left with a number which represents your net worth.
Is it positive or negative?