How to Calculate Your Net Worth

Today’s post on calculating your net worth is the first in an ongoing series I have tentatively called “Personal Finance Basics.” Throughout my life, I’ve encountered numerous people who have not yet learned what I consider to be essential processes, tools, and concepts for financial survival, and eventually success. Luckily, if you fit this profile, this series is precisely for you! You will learn the basics of handling money in short and easy to understand pieces, written in plain and straightforward English. My goal is to be as simple and unassuming as possible about what you already know. In today’s “lesson”, we will cover the basics of calculating your net worth.

First, A Quick Definition

A net worth analysis allows you to establish “where you are today” in terms of your finances. In simplest terms, your net worth is nothing more than all of your assets (things you own) minus all of your liabilities (things you owe). Tracking your net worth establishes a base line that can be an easy measure of your progress toward financial success. Net worth can be expressed either as a positive number (if you own more than you owe), or a negative number (if you own less than you owe).

The actual number may not be very important to you at all, but rather how it changes over time and the direction it’s heading. In general (unless you are trying to fail), you will want your net worth to be positive, and increase over time.

Let’s Begin by Adding Up Your Assets

To establish your asset totals, we will need to look at what you own in terms of cash, investments and physical assets. Below is a list of items to add up. Finding all of these may be difficult if you have multiple accounts, or accounts you haven’t checked in a while, but once you do it the first time, subsequent check-ins will be much easier.

• Checking Accounts – Use the balance from the last day of the month for easy month-to-month comparisons (eliminates intra-month variations).
• Savings Accounts
• Certificates of Deposit
• Investment Accounts – include any annuities or life insurance policies if they have a cash value.
• Retirement Accounts – include employee plans and IRAs.
• Value of Home (if owned) – A recent appraisal would be ideal, but a conservative estimate is the next best thing.
• Value of Cars (Kelley Blue Book is the authoritative guide on automobile values).
• Other Vehicles (boats, for example).
• Home Inventory Value – If you don’t want to go into detail, at least list any items with a value over $300. Read my post on why keeping track of inventory is important and a few software options.
• Valuables, if not included above (jewelry, artwork, etc.).
• Any other accounts where cash, investments or something of value is held.

Take everything on the above list and add up the values – this will represent your total assets.

And Now, The Liabilities

To figure out how much you owe, we need to total all of your outstanding debts. Be sure to include the following:

• Mortgage(s) – get your “payoff amount” (the amount you would need to send in if you paid off the entire balance in full) or make an estimate
• Credit Cards – look up your exact balances
• Car Loans – use the payoff amount (and also for the following items)
• Student Loans
• Personal Loans
• Money owed to family members

Now take everything above and add it up – this will represent your total liabilities.

Adding It All Up

Once you have your assets and liabilities added and your final numbers ready, establishing your net worth is relatively simple:

Net Worth = Assets – Liabilities

Remember that if your liabilities exceed your assets, your net worth will be negative. Otherwise, it will be a positive number.

So that’s it! You have successfully calculated your Net Worth! You now know exactly where you stand financially based on what you own, and what you owe to others. You have established a baseline you can use to measure your financial progress to success!

Try to repeat this process regularly. Once the initial work is complete, updating your numbers as often as monthly is not difficult. Be sure to save results from previous months so that comparisons from month to month and year to year can be drawn. If you are using Excel, it’s easy to create a graph that visually communicates your progress (we will address how to do this in a future post).