You have probably seen or heard things about people being “worth” millions or billions of naira or dollars. Maybe you’ve even thought about finding out how much you are worth in this sense.
But what do we mean when we say that Dangote is worth $10 billion? And how do you calculate a person’s net worth?
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What Does Net Worth Mean?
A person’s net worth is what’s left after we subtract the total value of their debts from the total value of their assets. In simple terms,
Net Worth= Total Assets – Total Debts
Of course, this doesn’t measure an individual’s intrinsic worth (how could anyone possibly do that?) It only shows how much you own in monetary terms, if your liabilities are taken out of the picture.
How Can You Calculate Your Net Worth?
Here’s how to find out your net worth.
1. List Your Assets and Their Current Value
Your assets are the property and money that you own. They include land and houses that you have fully paid for, vehicles, and things like your current, savings or fixed deposit account balances, your stock holdings, and retirement savings.
Make a list of these things, and write down what each one is currently worth. It might be difficult to determine the value of some of these items, but it can certainly be done. You can find out how much they may go for if they are to be sold today, and use the prices you get as their current valuation.
2. List Out Your Debts
Your liabilities include personal debt that you owe the banks, other lending institutions, or individuals. If you have purchased anything of significance– a car or house –and have not yet paid the full price for it, you may include the unpaid amount in your liabilities as well.
Write these things down and include their valuation, just like you have done with assets.
3. Subtract Your Debts from Your Assets
Add the values of each asset to obtain the total value of your assets. Do the same with your debts. Then subtract the total value of debts from the value of assets.
The value that remains after this subtraction happens is your net worth.
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A Quick Example
Let’s say these are your assets and their current value:
Your home (perhaps one you’ve built in your hometown or village): ₦30,000,000
Your car: ₦10,000,000
Bank account balance: ₦5,000,000
Value of the stocks you hold: ₦7,000,000
And your debts are as follows:
Bank loan: ₦2,000,000
Mortgage: ₦5,000,000
Here’s how to calculate your net worth in this instance:
Total Assets: ₦(30,000,000+10,000,000+5,000,000+7,000,000)
= ₦52,000,000
Total Debt: ₦(2,000,000+5,000,000)
=₦7,000,000
Your net worth: ₦52,000,000 – ₦7,000,000
=₦45,000,000
This means you would be worth ₦45 million.
How Do You Increase Your Net Worth?
There are three ways to increase your net worth:
1. Pay off your debts
2. Save more
3. Invest more
Do all three of these and you’ll get just a bit closer to those names on the Forbes rich list (if it’s something you’re keen on).
Featured image source: The Guardian NG
Did you find this article useful? Contact us: editor@connectnigeria.com
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