Do you know how to calculate your net worth or why you should? If your like most people you probably don’t give much thought to your net worth, but here’s why it matters. A net worth statement shows you the big picture of your financial health. You may be making hundreds of thousands of dollars a year but if you have a negative net worth then your financial health is probably suffering.
What Is Net Worth
So what exactly is net worth? The money that is left over after you sell all of your assets and pay off your debts is your net worth.
“Calculating your net worth helps you figure out where you are financially at this point in time. Expressed as a dollar amount, your net worth represents your financial health and is essentially the result of everything you have earned and spent up until now. While taking the time to calculate your net worth one time is helpful, what is really beneficial is to make this calculation on a regular basis so you can see trends in your overall financial health.” – Investopedia
How To Calculate Your Net Worth
I’m going to show you how to calculate your net worth on your own. Of course, you can use an app or net worth calculator to find your net worth quickly. But to truly understand your finances and get the most out of the information you need to know how to calculate your net worth yourself.
You can download a FREE net worth tracker here and fill in your numbers as we go through the steps to calculate your net worth.
Step 1: Calculate Your Total Current Assets
List the current balances of all your assets, this includes:
- Retirement account
- Stocks or Bonds
To find the current value of your house (the price you would sell it for today) use Zillow or a similar site to determine its current value. If you recently purchased your house you could list the purchase price as it’s current value.
To determine the value of your car, go to Kelly Blue Books website and enter your information. Don’t be too concerned about getting an exact dollar amount, you just want to be in the ballpark.
Do you include 401k in net worth? Yes, list the current value of your 401k. Even though this money is taxable when you draw it out, you still list the current value of your 401k.
Now that you have all the dollar amounts from your assets you can list them on the net worth tracker sheet under assets. If you didn’t print it out just list all your assets in a column on one side of your paper. Once you have everything listed, add it all up and put the amount under “total current assets.”
Step 2: Calculate Your Total Liabilities
Now, you need to list all of your debt, (the amount you owe) this includes:
- Car Loans
- Student Loans
- Personal Loans
- Home Mortgages
- Large Medical Bills
- Credit Card Balances
List each of your debts under the liabilities column with the dollar amount that you owe for each one. Make sure that you list the total amount that you owe and not your monthly payment. If you still owe $10,000 on your car and your monthly payment is $600, you write $10,000 for your car. Add up everything and list it under total liabilities.
Step 3: Calculate Your Net Worth
Now just subtract your total debt from your total assets to get your net worth.
Example Of How To Calculate Your Net Worth
For this example, we’ll assume that Mike and Amanda are a married couple in their forties. The following is a list of things that this couple owns as well as the debt that they have.
- House– According To Zillow their house is currently worth $1000,000 and they owe $60,000 on their home mortgage.
- Car-Kelly Blue Book values the car at 30,000 and $27,000 is still owed on the car.
- Truck-The truck is paid off and its current value is $10,000.
- Credit Cards-With three credit cards between them, they owe $5,000 on the cards combined.
- Student Loans-Mike still owes $3,000 on school loans.
- 401k– Mike’s 401K is valued at $30,000.
- 401k– Amanda has her own 401k and the current balance is $15,000.
- Savings– Mike and Amanda have a joint savings account with a balance of $2,000.
- Property– Amanda inherited 5 acres of property valued at $2,500.
- Medical Bills– Due to a minor accident, this couple owes $4,000 in medical bills.
Download a net worth tracker like the one above to track your net worth.
What If You Have A Negative Net Worth
According to the Motley Fool, 16.6 million U.S. households have a negative net worth. 14% of Americans have more debt than assets. If you have a negative net worth you are not alone. Student loan debt is a big reason many Americans are in the negative category. The fact that many people rent instead of buying a home is also a factor. Buying your own home allows you to build equity in an asset that goes up in value.
How To Grow Your Net Worth
Your net worth grows every time you shrink your debt or an asset like a house or 401k, goes up in value. So, to keep your net worth increasing you need to keep your finances organized by creating a budget and paying down your debt. Anything you can do to save money on everyday necessities or create extra income on the side will help grow your net worth faster.
- 12 Easy Ways To Earn Extra Money On The Side
- 5 Easy Steps To Create A Budget That You’ll Actually Use
- 31 Creative Ways To Save Money: A Little Can Go A Long Way
How Often Should You Calculate Your Net Worth
I calculate my net worth every month. Keeping track of my net worth helps to keep me motivated to achieve my financial goals. My husband and I recently paid off one of our rental properties and that increased our net worth significantly.
Online Net Worth Tracker
I track my net worth automatically with Personal Capital by linking my financial accounts. Available online and as an app, Personal Capital is safe and easy to use. This site is as secure as a bank website, no one can take money out from your accounts. My husband and I both have our 401k’s linked to Personal Capital.
My favorite feature of this Net Worth tracker is that they email you when your Net Worth increases or decreases. Of course, if you prefer pen and paper there are plenty of free net worth trackers online that you can download.