To calculate your net worth, add up all of the assets you own and subtract all of the liabilities or debts you owe. Net worth includes tangible assets such as your home and cars, investments, and money you have in savings, as well as certain other items of value.
What is net worth
Simply put, net worth is calculated by subtracting your liabilities from your assets. As a simplified example, if the value of your house, car, and investments adds up to $300,000 and you have $200,000 in outstanding debts, your net worth is $100,000.
Which assets should you include?
In general, there are only certain possessions you should include when calculating net worth. Stick to larger assets that could be sold or converted into cash relatively easily. Your car is an excellent example. Your TV, not so much.
Some assets you should definitely include in your net worth calculation include, but are not necessarily limited to:
- Homes (Primary residence, vacation homes, and investment properties)
- Cars and other vehicles
- Art, jewelry, and other valuable possessions
- Investments -- stocks, bonds, etc.
- Businesses you own, or have an ownership interest in
- Cash (savings accounts, checking accounts, CDs, and other)
It's also worth pointing out that most of these things are opinion-based. For example, there's no way to know the exact value of your house unless you sell it. If you have an appraisal in hand, use it, but if not, remember to be realistic when valuing your assets in order to attain an accurate net worth calculation.
Liabilities are pretty straightforward
Unlike assets, most liabilities are set-in-stone. If you owe $100,000 on your mortgage, that's what you use in your net worth calculation. Debt takes many forms, but some common liabilities you should include in your net worth calculation are:
- Car loans (including unpaid lease obligations)
- Bank loans
- Personal loans
- Credit card debt
An easy way to calculate your net worth
Here's a calculator that can help you determine your own net worth. Remember to be realistic and honest when entering your numbers in order to get the most accurate picture of where you stand.
How much should your net worth be?
There is no easy answer to this question, as there are so many different variables to consider. For example, people who own their homes tend to have higher net worth than renters, all other things being equal. And, many people just starting out in their careers have low, or even negative net worth due to student loan debt, even though they might be on solid ground, financially speaking.
The bottom line is that a more important metric than your actual net worth is whether or not it is increasing over time. As the value of your assets (especially your home and investments) increases, and you pay down your debts, your future net worth should increase, fairly consistently.
Therefore, it's a good habit to calculate yours every so often -- say, once a year -- to track your overall financial progress.
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