How To Calculate Your Net Worth & Why It's Important

How To Calculate Your Net Worth & Why It’s Important

As we get older, we all accumulate stuff. Small stuff, like all the boxes in the garage that are collecting dust, to very large stuff, like houses and cars (which may also be collecting dust). As your stuff adds up, you may start wondering what it’s worth. So might creditors or investors. In technical terms, net worth is your assets less your liabilities. For the everyday person, just think of it as what you own minus what you owe. So, how do you calculate your net worth?

How To Calculate Your Net Worth & Why It's Important

Make a list of what you own

Start by looking at your bank accounts. Write down how much you have in checking accounts, savings accounts, and any stocks or bonds. Also consider any retirement accounts, such as 401Ks or Individual Retirement Accounts, and investment accounts. A word of caution, just include the value that you currently have in each account, not what you expect to have when you retire or that investment pays off. You can always recalculate your net worth at a later date.

You can also include physical assets, such as your home and car. If you have a mortgage on your home, you can still include the value of your home. When you make your list of liabilities, or what you owe, you will account for the mortgage.

If you own valuable personal property, such as jewelry, watches, or collectibles, you can also include the value of those items in your assets. But make sure that you have done your research to find out exactly how much they are worth; not how much you think or feel they should be worth. Better yet, have them professionally appraised and keep all required paperwork. This will help you justify the amount that you claim as assets.

Add up all of these items to find your total assets.

Make a list of what you owe

Start again with your bank accounts. Write down how much you owe on credit cards. This is one of the most common liabilities that individuals have. If you have multiple credit cards, include all of them as liabilities. But only include the amount that you have put on credit, not the total credit limit.

You should also include any money that you owe on loans, such as student loans, auto loans, and personal loans. Also include your mortgage, or the amount that you owe on your home.

And include any home equity loans that you may have taken out.

Add up all of these items to find your total liabilities.

Do some simple subtraction

Now comes the easy part. Subtract your total liabilities from your total assets. Now you’ve found your net worth. It’s that easy. Hopefully you’ll end up with a positive number, meaning that your assets are larger than your liabilities. Even if that’s not the case, uncovering your net worth will help you take steps to build it over time.

Why is net worth important?

Net worth is a good way to learn about your financial health. Seeing the numbers in black and white will help you make changes to build your net worth, such as paying down debt or taking steps to add value to your home. It can also act as motivation to continue healthy spending and saving habits.

As you see your net worth grow, you will be inspired to keep making those good financial decisions. It is important to note that some things will change that are outside of your control. Housing markets and stock markets will fluctuate over time and may impact your assets or liabilities.

Experts recommend calculating your net worth annually or when you have a significant change in financial status. Many services are available online that will help you calculate your net worth.

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