Single Parent Finance: Knowing Your Personal Net Worth

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In this post, and expert from Emma the finance app tells Frolo why net worth is important and how to calculate yours.

How to calculate net worth

You may already be familiar with the term net worth. In most cases, net worth is talked about in relation to the rich and famous. You’ll see headlines stating how Kylie Jenner’s net worth is an estimated $700 million – not bad for a 23 year old. Or, how Jeff Bezos has been named the world’s richest person for the fourth year running… with a casual $177 BILLION net worth.

While it may be interesting to read, and even dream about this kind of wealth, we think that taking the time to know and understand our own net worth is probably more worthwhile.

Here we’re going to explore what net worth means, why it’s important to your financial growth, and how you can calculate your own.

What is personal net worth?

Your personal net worth is a single number that can be used to determine your current financial position. This number could be positive or negative and can be tracked over your lifetime.

Someone who has worked for fifty years and has successfully managed their money may have a high net worth. Whereas, a recent graduate who’s just started a job, is more likely to have a low, or even negative net worth.

Understanding your current net worth helps you identify where you stand financially and helps you to feel more in control of your finances. Feeling confident about money and long term financial goals is especially important as a single parent – you’ve got people relying on you to create a secure future and to teach them how to manage money as they grow up.

Once you understand your net worth you can track it each month to identify if your financial situation is improving or not. For example, if your net worth in January was £10K, and now it’s £12K you know you’re doing something right.

You can also use net worth to set financial goals. You could set a goal to end 2021 with a positive net worth. Or you could even be more specific and aim to reach a certain net worth number.

How do you calculate net worth?

The basic net worth calculation is assets – liabilities = net worth. If you want to calculate your own net worth follow these steps below.

1. List all your assets

An asset is described as something that is useful or valuable to a person.

Start by writing down the value of everything you consider to be an asset. This could be the value of your property or your car. The amount of money you have in savings, investments or checking accounts, or money you have saved in retirement funds. If you have expensive jewellery or a designer bag this could also be included as an asset.

Generally you only need to note down everything that could provide a source of cash flow in the future. For example, if you own an expensive piece of tech, only include this as an asset if it’s likely to one day generate some money. Likewise if you don’t actually own the item then you can’t consider this an asset.

2. List all your liabilities

The next part of the net worth formula is to note down all your liabilities.

A liability is anything that you are responsible for, especially an amount of money owed. In this list of liabilities you should include things like the balance of any mortgages, student loans, credit card repayments, etc. If you have any big household bills, or taxes due, you could also include these as liabilities.

3. Calculate Assets – Liabilities

Once you know both the sum of your assets and the sum of your liabilities you now just need to subtract them. The number you have left is your net worth.

Example calculation…

Amy is 45 years old. She owns a home worth £200K and has £50K left to pay on the mortgage. She also owns one car, which she paid for in full when buying. Amy hasn’t paid off all of her student loans yet, and she currently owes £4K on credit cards, which she’s determined to pay off in the next year. She’s managed to save a nice sum of money, and has also been adding into her pension pot since the age of 25.

AssetAsset ValueLiabilityLiability ValueHouse200KMortgage50KPension30KCredit Cards4KCar12KStudent Loan10KSavings22K

Total Assets264KTotal Liabilities64K

We can now work out that at this current moment, Amy has a net worth of £200K (£264K – £64K)

What if the number is negative?

If you’ve calculated your net worth and are panicking that it’s a negative number, try not to worry too much. There are lots of reasons why you might have a negative net worth. As you begin to create a solid financial routine, your assets will start to increase enough to outweigh any liabilities.

Can I track my net worth?

The number you have just calculated is a one time view of your net worth. It can therefore be a good idea to revisit this calculation multiple times a year. As you add to your savings, or pay off any debts, you should see your net worth value increase.

You can use the above calculation to track your net worth, or you could let a money management app do the hard work for you.

Emma is a brilliant free app that helps you budget, track your spending, and save money. It uses open banking to let you connect your current accounts, credit cards, investments, savings, pensions and loans from multiple providers into one app. You can download Emma here and have a go now.

Having all your accounts connected in one app makes calculating your net worth easier than ever. You’ll be able to track how your net worth changes over time and can rest easy knowing your finances are under control.

Tips for increasing your net worth:

Taking control of your finances will help you increase your net worth. Here are a couple of things that’ll help you increase your net worth over time.

  1. Create a budget to help you keep an eye on your spending
  2. Review your liabilities and set an action plan for paying off any debt
  3. Reduce your expenses. Shop around to see if you can get cheaper energy, broadband, insurance and phone bills
  4. Find new sources of income, perhaps use Ebay to sell unwanted items or start a side hustle
  5. Make the most of your workplace pension, especially if your employer will match your pension contributions
  6. Make your money work for you by keeping it somewhere it can grow i.e an investment/ high interest savings account

This article was written by the Emma team. Emma is a free money management app that helps you budget, track your spending, and save money. Download Emma now, or head to the Emma blog or Instagram account to find out more about using the app.