The subject of net worth is often shrouded with sensitivity as people often view personal matters of finance private to avoid judgement, social comparison and being a target of unscrupulous individuals.
Over the past week when the newly appointed Cabinet Secretaries were undergoing vetting by the National Assembly, their net worths sparked national debate, especially those whose value had appreciated by hundreds of millions in a matter of months.
This also elicited a general inquisition on how to determine one’s networth as it is beneficial for understanding a person’s finances early in life to aid in goal setting, investment planning, debt management and ultimately in ensuring financial security.
Net worth can be assessed independently by the individual, but for a more precise and comprehensive evaluation, particularly when dealing with substantial estates, professional valuers provide the most accurate results.
“Net worth involves determining the value of all personal assets and then subtracting personal liabilities to arrive at the net worth of a company or person. Personal assets include, but are not limited to: Cash and cash equivalents: Cash in banks and cash on hand, Investments: stocks, bonds (including government bonds), mutual funds, and sometimes pension schemes, Real estate: residential homes, investment properties, and land, Personal properties: vehicles, art, and other collectibles and other assets like life insurance (cash value) and business ownership,” a corporate mananger from PKF Consulting told a local media outlet.
To establish the value of each asset, you can use various methods to assist in the evaluation process.
They include the use of recent statements from bank accounts, investment, and retirement accounts at a particular date to determine the value of cash and cash equivalents and investment in the stock exchange.
Another method is the involvement of a professional valuer who can issue an appraisal or recent market value estimate for real estate, land or buildings.
“For other items like vehicles, art, and collectibles, you can check the market prices to determine the value of those assets,” the manager state.
After determining the value of your assets, conduct a break down of all your personal liabilities. Personal liabities include all your debts and obligations, such as mortgages, car loans, credit card debt, student loans, medical bills and even tax liabilities.
Mortgage value , loans and credit card debt can be determined by bank statements and for other debts ,the balances that are yet to be paid constutute to the liabilities. In the case of student loans in Kenya, you can get a statement from the Higher Education Financing website.
To establish your actual net worth, calculate the total value of your assets and then subtract your total liabilities.
Here is an example of how to calculate your networth:
Suppose that you have:
- Cash in bank and on hand: KSh 3 million
- Investment in stocks in the Nairobi Stock Exchange: KSh 5.5million
- Residence: KSh 10 million
- Vehicles: KSh 4 million
Your total assets are equivalent to KSh 22.5 million.
Then calculate your liabilities:
- Mortgage: KSh 3 million
- Auto loan: KSh 2 million
- Credit card debt: KSh 1.5 million
Your total liabilities are equivalent to KSh 6.5 million.
Assuming that you have unpaid taxes worth KShs 1 million, your liabilities will hence be Kshs 7.5 million.
To get your net worth, take your total assets of KSh 22.5 million and subtract your total liabilities of KSh 7.5 million. Your net worth is hence KSh 15 million.
Early knowledge of your net worth is valuable as it boosts financial awareness and establishes a basis for future financial security.
