How much money do you make? I’m guessing you can probably answer that question pretty easily, either in terms of an hourly wage, average monthly income, or annual salary.
Just about everyone knows how much they make, but most people don’t know their net worth.
Your net worth is a simple measurement of where you stand financially. It’s one of the most important metrics we have, and more indicative of your financial position than how much money you make. Yet, most of us don’t take the time to calculate our own net worth, or know how to calculate your net worth.
Calculating your net worth is a simple process. It’s easy math, you just need to have some accurate information on your current assets and liabilities. You can use a calculator or a free app like Personal Capital to calculate it for you, but it’s helpful to know how to do it even if you’re using a tool for help.
Your net worth is simply your assets minus your liabilities (what you own minus what you owe).
Your goal should be to increase your net worth by increasing the value of your assets and reducing your liabilities.
Calculating and tracking your net worth can be a great motivator. It tells you exactly where you are right now on your financial journey. If you have a specific goal for your net worth at retirement, which I recommend, you can also track your progress and see how close you are to being able to retire.
→ Related reading: 9 Convincing Reasons Why You Should Be Tracking Your Net Worth
Calculating Your Net Worth
Step 1: List Your Assets and Their Value
There are a few different ways you can do this. You could use Personal Capital and link up your financial accounts. You could use Excel, Google Docs, or another spreadsheet. Or, you could simply write it down on paper. (We offer a free net worth calculation spreadsheet in our Financial Planner Printables Pack, which you can get for free by joining our email list below.)
Regardless of which approach you use, you’ll start by making a list of your assets. This includes things like:
- The value of your home
- Checking accounts
- Savings accounts
- 401(k) account
- Brokerage accounts
- The value of your car(s)
- Any other valuable assets that you have.
You don’t need to include all the random stuff throughout your house. Only things of significant value matter. If you have jewelry, art, or collectibles that are worth a significant amount you can include that if you’d like. Personally, I don’t include any of that stuff because I don’t want to inflate the number… and because I don’t own much of value outside of our home and investments. It’s best to keep it simple and only include the major stuff.
The value of some things, like bank accounts, is pretty straightforward and obvious. Other things, like your home or cars, may be more challenging, especially if you’ve had them for a long time.
There are a few websites like Zillow and Redfin that will provide an estimated value for your home, but those numbers aren’t always the most accurate. You can also check Zillow and Realtor.com to see what houses in your area have sold for recently. And, of course, you can also check to see what homes are currently listed for. Using the selling prices of local homes that are similar to yours will give you the best estimate as to the value of your own home.
Once you have everything listed, add it up for a total dollar amount of your assets.
→ Related reading: Liquid Net Worth: What it is, Why it Matters, and How to Calculate It
Step 2: List Your Debts and the Amounts
The next step is to do the same thing with your debts. This part is pretty easy, you just need the balances for all of your debts. This includes things like:
- Your mortgage
- Car loans
- Credit cards
- Student loans
- Any other kind of loan or debt.
Of course, when you’re done listing them you will add it up for a total dollar amount.
→ Related reading: 50+ Financial Freedom Quotes to Motivate and Inspire
Step 3: Subtract Your Liabilities from Your Assets
To calculate your net worth all you need to do is take your total assets minus your total liabilities. Your net worth could be a positive number or a negative number. It’s not unusual for young people to have a negative net worth for a while, especially if you have student loans. If that’s the case, you don’t need to panic. The purpose of calculating your net worth is to let you know where you stand. Once you know, you can do something about it.
In just five minutes, Savology will help you to create your own personalized financial plan. You'll see a detailed report card that grades you in different aspects of your financial life, and you'll get recommended action items that you can use to improve and put yourself in a better spot for the future. And did we mention it's free?!
Let’s take a look at an example to illustrate how you would calculate your net worth. Brian is a fictional 30-year-old guy, and here are his numbers.
- Home – $220,000
- Checking account – $1,500
- Savings account – $5,000
- 401(k) – $45,000
- IRA – $15,000
- Car – $8,000
- Total assets = $294,500
- Mortgage – $180,000
- Student loans – $10,000
- Car loan – $4,000
- Credit cards – $2,000
- Total liabilities = $196,00
Brian’s net worth is $98,500 ($294,500 – $196,000).
Tracking Your Net Worth
Calculating your net worth can be an eye-opening experience (good or bad). But this isn’t something that you should just do once and then move on. Tracking your net worth can be a great way to see your progress and to motivate you towards your personal or family financial goals.
I recommend tracking it each month. Don’t worry, this doesn’t have to be a time-consuming activity. If you sign up for a free Personal Capital account you can link it to your bank accounts, investments, and credit cards. You can also enter the details of your other assets that can’t be linked. Once it is set up, which only takes a few minutes, you can check your net worth at any time just by logging in.
I’ve been using Personal Capital since early 2018 and I love how easy it is to get a big picture view of my finances. I wish I had paid attention to net worth more in the past, because it really keeps me motivated to work towards my financial goals.
Increasing Your Net Worth
Of course, the goal is to increase your net worth. That can be done by increasing the value of your assets, by decreasing your liabilities, or both. Here at Vital Dollar you’ll find a lot of resources and articles that can help you to make more money or save money. Here are a few articles that you may want to check out.
- 150+ Side Hustle Ideas to Make Extra Money in Your Spare Time
- 101 Practical and Realistic Ways to Save Money
- 100 Websites for Saving Money
Calculate Your Net Worth Today
I highly recommend that you take some time today to calculate your net worth and see where you stand financially. You can use an app, a spreadsheet, or just pen and paper. It doesn’t really matter how you do it, just do it.