# Mutual Funds Practice Question

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The question asks how to calculate a client’s net worth. I’ll cover this question, but then I’ll go a little further to help you with a more challenging question that you could encounter.

This is what I refer to as a quick hitter question, you either know it or you don’t.

Net worth is calculated on a specific date by totaling the individual’s assets, which includes things that have a dollar value like a car, and deducting an individual’s liabilities, which is money they owe, such as a car loan. So let’s go ahead and select the answer that says assets minus liabilities, and of course, we are correct.

Here is a more challenging question where we can apply what we just discussed. Given the following information, what is Carl’s net worth? As you can see, we are provided with a whole mishmash of information on a table. Let’s add a third column and sort through it all indicating whether the item is an asset, liability or something else. For greater ease, I’ll also identify them by color. The house, car, cash and RSP account are all assets. The mortgage, car loan and credit card balance are all liabilities. The other items which I have coded in blue are cash flow items, which refers to money coming in and money coming out. We don’t need these figures for a net worth calculation, so I’m going to cross them out. Before doing so though, if we were being asked to calculate the client’s net cash flow, we would need these figures. Here’s an important tip. Notice some monthly and others are annual figures. When calculating cash flow, we would have to convert them to the same frequency depending on whether we are doing a calculation on a monthly or annual basis. Now that all the legwork is out of the way, it’s easier to calculate Carl’s net worth, which is \$559,000. I’ve provided the math as well as a simple net worth statement for Carl. I encourage you to pause the video so you can absorb it all.