How do you calculate net worth? Most people don’t take the time to calculate their net worth, but it is a very good tool to help you get a look at your financial picture.
The equation is very simple, really. It is your Total Assets (the items you own) minus your Total Liabilities (the money you owe, also known as your debt).
Below are the items that would fall into your Assets category:
Value of primary residence
Value of secondary residence
Value of any other properties you may own
Value of any automobiles
Retirement Accounts (401ks, IRAs, etc.)
Stocks and Bonds
Collectibles, art, furnishings, jewelry, and any other items you own that are of great value
You would take the sum of the value of all of these items above, and that would be your Total Assets.
Then, you would calculate your Total Liabilities.
Below are the items that would fall into your Liabilities category:
Home equity loan (s)
Student loan (s)
Credit card (s)
Medical Bill (s)
Auto Loan (s)
Other Personal Loan (s)
You would take the sum of the value of all of these items above, and that would be you Total Liabilities.
You would then subtract your Total Liabilities from your Total Assets, and that would give you your Net Worth.
So, if your Total Assets were $100,000, and your Total Liabilities were $50,000, your Net Worth would be $50,000. ($100,000 – $50,000 = $50,000)
If you find that you have a very small Net Worth, or a negative Net Worth, then you need to work on paying off your debts, lowering your spending, and then saving and investing.
Please leave any comments or questions below. Thanks!