How to calculate your net worth and why is it important for your financial future?
The calculation of equity is essential to know what your financial future is. Do you want to know how to do it? In this article, I’ll give you more details.
How to calculate the net worth
The calculation of assets sometimes has a problem: assets and rights are calculated, but debts and obligations are ignored. And here it is appropriate to correctly differentiate between gross and net assets. It is common to talk about the first figure, but the one that is really important for tax and financing purposes is the second.
The calculation of gross equity is simple: we add up the assets and rights we have. Here we include real estate, vehicles, current accounts, securities or even cryptocurrencies, depending on the case. When we talk about companies, we would be talking about their assets. It is convenient to take into account the change between individuals and companies, so as not to confuse.
On the other hand, to calculate equity, the formula changes: debts and obligations must be subtracted from assets and rights. And, only then, we will have the real amount of wealth you have. This applies interchangeably for companies, but also for individuals. Likewise, this puts in its dimension what your room for maneuver is. The important thing, really, is that the subtraction is used with real figures and that the administration considers them correct, which sometimes causes problems.
As a reference element, remember that this calculation has to be done with assets and debts on December 31 of the last year. For example, in a calculation of a current account that cost will be taken; on the other hand, in the calculation of values, an average is taken to accrue taxes.
Why it is important to calculate equity for your financial future
For your financial future, the calculation of equity is fundamental. We refer to the following cases that you must take into account to assess correctly and not have problems:
1. Conocimiento tu situación financiera real
First of all, equity allows you to know what your real financial situation is, without misinterpretations. This is fundamental, since without a real knowledge of the situation, you will find surprises. Therefore, and as an initial element, it is convenient for you to do the calculation every year. This variable helps you plan your financial situation in the medium and long term and, thus, not have problems.
One of the recurring problems of the personal financial situation is a miscalculation. To calculate net assets, you have to know the legislation well, and there are some details such as amortisation or depreciation that most people do not know. For this reason, having a specialised tax advisor is important.
2. Calculation of the tax base for the payment of taxes
The tax base for the payment of taxes takes into account what is the net, not the gross property. Let’s take two examples: the Wealth Tax (IP), the Tax on Great Fortunes and the Inheritance and Donation Tax (IS). There are other taxes that also take into account the heritage, so this mass of assets has to be updated every year. We say this because, from a certain threshold, the obligation to pay is generated or you exonerate yourself, taking into account the deductions.
It should be noted that this is important because, sometimes, taxes may be claimed for past years. In addition to knowing the territory in which you live because the tax rates will vary, you must have your financial situation updated. This way, you will know what taxes you have to pay and how to do it.
3. Information for applying for financing and loans
Equity provides you with information to request financing and personal loans. Financial institutions not only ask you for a fixed income level in some cases, but guarantees. When you do not have enough value in real estate, they will verify that your net assets in other areas, such as bank accounts or securities, are sufficient. Therefore, it is a fundamental variable to know the financing options you have.
Of course, the criteria for granting loans and financing are subjective. In the end, it will ultimately depend on the companies. Therefore, it does not hurt that you have clear and predictable information. In the end, that is the way to anticipate the situation and see what needs you have and how to respond to them.
In short...
Equity is an essential magnitude for you to know what your financial situation is, pay taxes or ask for information about loans. At Asesoría Orihuela Costa we specialise in tax advisory services that clarify your doubts. Contact us and we will inform you in more detail!
