What is Net Worth and How to Calculate It?

Net worth is a key financial metric that provides a comprehensive overview of an individual's financial health. It is calculated by subtracting liabilities from assets, and it gives an indication of an individual's financial standing at a given time.

Here is a more detailed explanation of net worth:

• Assets: Assets are anything of value that you own, such as cash, investments, property, and vehicles.
• Liabilities: Liabilities are debts that you owe, such as credit card debt, student loans, and mortgages.
• Net worth: Net worth is the difference between your assets and liabilities. A positive net worth means that you have more assets than liabilities, while a negative net worth means that you have more liabilities than assets.

Read to know more about net worth, details on computing net worth and how Savings accounts are a prudent choice for preserving and growing your net worth.

How is net worth computed?

Net worth refers to the overall assets’ value held by an individual after subtracting all liabilities. Assets involve investments, cash, vehicles, properties, jewellery, and various other valuables. In contrast, liabilities encompass loans, debts, outstanding payments, and mortgages.

To compute net worth, follow the below-mentioned steps –

• List your overall assets along with their corresponding value and sum up the overall assets’ value.
• List overall liabilities and their respective figures and sum up the overall liabilities’ value.
• Deduct the overall liabilities from the overall assets to know your net worth.

Opening savings bank account for preserving and growing your net worth –

A savings bank account is a crucial tool to preserve your net worth. It provides a secure and safe place to deposit your surplus funds, earns higher interest and facilitates easy money access when required. If you do not want to go through the hassle and stress of physically approaching a bank branch for opening an account, you can open a savings account online. Online bank opening process is user-friendly, time-efficient and requires minimal documentation.

Read on to know the top features of savings accounts –

Rate of interest

Savings account interest rates can differ among distinct account types, so it is vital to choose the account type with a competitive rate and features to enhance your overall earnings. One such feature that can help you earn a higher interest rate of up to 7 per cent per annum is the auto sweep facility. As per this facility, the excess amount in your savings bank account over a predefined threshold is automatically transferred to a fixed deposit, allowing you to earn higher interest. This feature in savings accounts provides you with the flexibility to access funds anytime without any penalty.

Debit card and online banking facility

Savings bank accounts often come with debit card facilities, allowing you to make easy transactions and withdrawals using the card. Besides this, savings bank accounts even provide internet banking services, which help you to manage your finances conveniently through your phone or laptop. By using the online banking service, you can check your bank balance, and other details linked with bill payments, fund transfers, and automatic deductions. Such savings account features allow you to remain on top of your finances.  

Security and safety

Savings accounts are protected by DICGC (Deposit Insurance and Credit Guarantee Corporation), which ensures your deposits of up to Rs 5 lakh per bank account are safe on the event of bank failure. So, choosing a reputable bank such as Kotak Mahindra Bank for opening your savings account is crucial owing to its strong track record of ensuring financial safety.

Compounding interest and regular savings

The compounding effect works in the favour of savers. As you earn savings interest, this interest in turn is invested back, which yields higher interest over time, thereby growing your wealth. The power of compounding can be highly effective in accelerating your wealth growth if you consistently add to your bank account via regular deposits. For this, ensure to set a monthly budget and allocate some portion of your savings every month. You may even consider setting up an automatic deduction facility in your bank account to avoid missing out on saving opportunities.

Ending note

Knowing your net worth is essential for evaluating financial progress and prioritising future goals. By opening a savings bank account and making the most out of its features, such as online banking and competitive rate of interest, you can preserve as well as grow your net worth. Periodic contributions to your bank account and the power of compounding can further help attain financial prosperity and security.