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How do I calculate my net worth?

An individual or a family can calculate their net worth simply by subtracting liabilities from assets. Essentially, net worth is the fair market value of all assets owned such as your house, stocks, bonds and other securities minus liabilities such as mortgages and other loans at a particular point in time.

In order to calculate this amount you will have to pull together various financial records such as tax records, insurance policies, real estate records, household bills, pension account statements and loan repayment schedules. A statement of net worth divides assets into liquid (cash), investment (RRSP, investment portfolio) and personal assets (house). Investment assets and liabilities are further divided into short and long term. The only way that your net worth can increase is to have positive cash flow or savings. Savings are positive when annual cash inflow exceeds cash outflow. If cash flow is negative you can reduce your expenses, increase your income or a combination of both. If these strategies fail to result in positive cash flow you may have to re-evaluate your net worth goal. Even if your income does not increase you can increase your cash flow by:
1) reducing the balance in your chequing account and shifting it into higher yielding money markets;
2) increasing your tax savings;
3) re-organizing you investment portfolio and moving funds into higher risk/return investments; and,
4) moving non-incoming investments like gold into income-producing investments. You should keep in mind that the last two strategies would increase your risk. You should calculate your net worth every year to ensure that it is increasing and that you are progressing towards your financial goals.