Net worth provides a quick snapshot of your overall financial health. This simple figure is calculated by subtracting the dollar-value equivalent of all of your debts from all of your assets. Knowing your net worth can help you determine where you are in your financial journey — and, just as importantly, where you want to go. Read on for a quick guide to calculating your net worth.

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What is net worth?

Net worth is calculated by subtracting all of a person’s liabilities from all of their assets. If an individual also has intangible assets — such as intellectual property (IP) — these can also be factored into their net worth. In this case, the value of intangible assets is also subtracted from total assets (in addition to liabilities like debts). This is known as tangible net worth.

Tangible net worth is generally more relevant for business entities than for people. For example, if a company is being sold or liquidated, its value needs to be determined. This is done via a calculation of tangible net worth, which would factor in intangible assets a company may have, like copyrights. However, since we’re focusing on personal finance, we’ll concentrate on the more straightforward net worth calculation.

Is net worth important?

Net worth is valuable because it can indicate your general financial stability. It’s distinct from other financial indicators, like earnings. For example, if you earn loads of money but have a ton of debt and tend to overspend, you may actually not have a very high net worth. Recognizing this can be the first step toward improving your money management — for instance, through a conscious spending plan

However, looking at net worth in a vacuum won’t do you much good. Don’t just focus on your current net worth. If you want this information to serve you well, you should be tracking your net worth over time. Ideally, your net worth will grow with age. The good news is that this is the case for most people. A positively growing net worth can help you achieve life goals, like FIRE (Financial Independence, Retire Early).

It can also help to get a sense of your net worth compared to other people your age. If you aren’t happy with your current number, there are steps you can take to improve it. This generally involves first decreasing your liabilities by paying off your debts, growing your money through diverse investments (401(k)s, Roth IRAs, stocks, bonds, mutual funds, etc.), and earning more through multiple income streams.

How to calculate your net worth

Before you can work on improving your net worth, you need to figure out where you stand. What’s your current baseline? The financial calculator for net worth is pretty simple: 

Assets – Liabilities = Net Worth 

But what’s considered an asset or a liability? To make it even easier, we break it down for you in detail below.

Calculate your assets

To calculate your net worth, start by making a list of all of your assets and determining each asset’s dollar-value amount. A simple two-column spreadsheet should cover all of the information you need. Assets include cash and any goods that you could sell or liquidate for cash. These include:

  • Bank accounts (e.g., checking accounts and savings accounts)
  • Retirement savings, including 401(k)s and Roth IRA retirement accounts
  • Investments like index funds, exchange-traded funds (ETFs), stocks, bonds, certificates of deposit (CDs), etc.
  • Real estate, including your primary residence (what it’s valued at) and any other properties, such as rental properties, vacation homes, etc.
  • Cash value of life insurance accounts
  • Other personal property like cars, jewelry, collectibles, etc.

Calculate your liabilities 

The next step in calculating your personal net worth is to make a list of your liabilities and determine each liability’s dollar-value amount. Again, a simple two-column spreadsheet should cover the information you need. Liabilities consist of any money you owe to a bank, person, lender, or another entity. These include:

  • Consumer debts like credit card debts
  • Student loans
  • Car loans
  • Payday loans
  • Home equity loans
  • Personal loans
  • Mortgages on property you consider assets

Calculate assets – liabilities

Once you have your two lists of assets and liabilities complete, total up the dollar-amount value of each one. Then, use the net worth equation to calculate the outcome:

Assets – Liabilities = Net Worth

Here’s a quick example of how a final net worth calculation might turn out. Let’s say you calculate the value of your assets and they look like this:

Asset Value
Current Market Value of Your Home $300,000
Savings Account $20,000
Checking Account $8,000
Investment Portfolio $50,000
Car $22,000
Total Assets: $400,000

Now, you calculate all of your liabilities. Here’s what those might look like:

Debt Value
Home Mortgage $150,000
Auto Loan $5,000
Credit Card $10,000
Student Loan $20,000
Total Assets: $185,000

You can now calculate your net worth. Just subtract as follows to get the total amount:

$400,000 – $185,000 = $215,000

Keep in mind that your personal net worth will fluctuate over time, so it’s worth calculating at least annually. The number will change according to how your personal liabilities and assets evolve and how the money market changes. For example, you might pay down a credit card balance, reducing debt, or your savings account could be impacted by low interest rates, slowing asset growth.

Improving your financial future starts now

Calculating your net worth might be intimidating at first. What if you aren’t happy with your number? Don’t let this kind of thinking deter you. Remember, you can always improve your net worth — for example, by paying off debts, investing, and boosting your earnings. The real danger is not knowing your net worth at all. This is a valuable indicator of financial health that goes beyond basics like income.

Fear and anxiety related to money-related topics like net worth will ultimately prevent you from achieving your maximum earnings potential. If you want to make your money work for you, be ready to talk about financial topics. Knowledge is often the first step toward improving your financial situation. 

Being financially savvy doesn’t mean you have to become a money-obsessed penny-pincher. The “I Will Teach You To Be Rich” approach provides straightforward wealth management and financial information you can implement in everyday life. The philosophy doesn’t require living a spartan life and denying yourself all pleasures. Rather, it’s about understanding your money dials — why you spend the way you do — and focusing your spending on things you truly love. 



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