To calculate your net balance, you need to follow a two-step process, as detailed in the provided reference. Here's a breakdown:
Step 1: Calculate Net Worth or Net Income
First, you subtract your total liabilities from your total assets.
- Assets: These include everything you own that has value, such as:
- Cash in bank accounts
- Investments (stocks, bonds, etc.)
- Real estate
- Personal property (cars, furniture, etc.)
- Liabilities: These are your debts and obligations, such as:
- Loans (student loans, car loans, etc.)
- Credit card debt
- Mortgage balances
- Other bills
Formula: Total Assets - Total Liabilities = Net Worth (or Net Income)
This calculation gives you your initial net worth, which is what you have leftover if you sold everything you own and paid off all your debts.
Step 2: Adjust for Debt
The second step involves subtracting any debts you may have from your net worth calculated in step one. However, this step is redundant, as the debt is already accounted for in the first step, where you subtract your total liabilities from total assets. Thus the net worth result from Step 1 is your Net Balance.
Example:
Let's say you have:
- Total Assets: $150,000
- Total Liabilities: $50,000
Calculation:
- Net Worth/Net Income: $150,000 (Assets) - $50,000 (Liabilities) = $100,000
Therefore, your net balance (which is your net worth in this context) is $100,000.
Clarification on Terminology
The term "net balance" can sometimes be ambiguous. In the context of financial health, it is often used interchangeably with "net worth". The reference specifically details a two step process for determining net worth: calculate net income by subtracting liabilities from assets, then secondly subtracting debts from this result. However, since in the first calculation debt is included in the term "liabilities" , the second step is not necessary. Thus net worth as calculated in Step 1 equates to your "net balance".
