Calculation of your net worth

The first step to overcoming your obligations is to properly discern the situation. How much debt do I have, how much money do I have, and is it enough to pay off my debt? However, cash in hand is not all you have.

What is Net Asset Value?

Do not confuse the net worth with the value of the property, which does not take into account debts. If you have an apartment worth PLN million, and at the same time a mortgage also for PLN 1 million, then your net worth is PLN zero.

Net worth is nothing more than a comparison of all the assets you own with all the financial liabilities you have. And by writing: everything, I mean everything that you are able to sell to get the cash equivalent for it.

How do you calculate the net worth of your assets?

Calculate the value of the property at the present moment. If you own an apartment, determine and write down its market value, and not the price at which you bought it. What matters is the amount at which you can realistically liquidate your assets even today.

If you bought an apartment for PLN 500,000, and now it is worth PLN 700,000 and you have a car bought for PLN 100,000, but today it is worth PLN 50,000, then your net worth is PLN 750,000, not PLN 600,000. I hope this is clear to you.

When determining the price at which you are able to sell an apartment, take into account such criteria as: city, district, area, number of rooms, floor, neighborhood. Based on the photos, compare the decor and the standard of finishing. You can set the price very easily.

Of course, this is only an indicative amount, and a potential buyer will confidently bargain, and you may be forced to slightly lower the price. Don't worry about it at all. You are not selling anything yet, and you may not have to do it at all. At the moment, we are engaged in determining the level of seriousness of the situation and potential problems with debts.

In a similar way, you can calculate the value of everything you currently own. All you have to do is look through the offers and announcements on one or several auction portals. In addition to real estate, check the prices of items you think can be sold — a car, furniture, electronics, jewelry, and whatever you can think of. However, do not waste time on things of very low value or those that are difficult to sell. You might be able to collect a few dozen zlotys for it, but it's a waste of your time. Also, remember that prices are real — for the buyer, your personal attachment to the item means nothing.

Add to everything also ordinary cash such as the balance of the ROR account, deposits, foreign currencies, stocks, bonds.

You can do this on a regular sheet of paper, but I recommend you to use the sheet in Excel, Google or similar applications. Thanks to this, you will create a clear table with automatic summation of all components. Next to it, make a second table, which will contain all your debts.

From your wealth, you still have to deduct liabilities, that is, mortgage loan, car leasing, installments for home equipment, credit card debt, debit in your account, payday loans, official penalties, overdue fines, etc. If your debt is higher than your accumulated wealth, then unfortunately you are in a situation that can lead to a potentially big problem, although it does not have to be at all.

Why monitor net worth?

Although it can take up to a few hours to prepare a good list, it is definitely worth doing it for several reasons:

• You get to know your actual state of finances, which can be very different from your ideas.
• In addition to using your belongings, you begin to clearly see how much they cost you and also remember more strongly the debt associated with them.
• As a result, you can change your approach and reduce the amount of funds spent on purchases of items that are severely depreciating.
• Knowing the full scale of your debt opens your eyes and arouses the desire to clear this part of the table by paying off your obligations.
• This is an objective comparison. When you make another, for example, in two months, you have no doubt that your decisions were right and the actions improved the state of finances.

What does your net worth say?

The result alone does not determine anything, and the same net worth of two different people does not mean that these people are in an identical or even similar situation. In addition to the result itself, its context and the monitoring of changes are important.

Even if your net worth is zero or even in the red, it doesn't have to be a bad sign. Perhaps you just took a mortgage, the total cost of which exceeds the value of the apartment, but you have no problem paying it off, and every month you improve the result? Or do you run a business that brings regular income, but to start it you had to lease equipment? Even though your net worth is in the red, you are improving the situation. Or you may be in the opposite position — your net worth is on the plus side, but gradually decreasing.

Don't just suggest yourself by the result of the compilation. In addition to it, what counts is a stable source of income, reducing debt and finally increasing the value of your assets.