How to Calculate Net Worth

Determining your net worth is important in order to qualify for a variety of financial products such as loans and investments. Calculating it isn’t too hard, but it is important to start with accurate information in order to get a good result.

To begin, gather together any documents pertaining to financial accounts and loans. Then, on a piece of paper or spreadsheet, make two columns.  In the first column, list every asset that you own. Assets are any property with value to another (neutral) person. Be sure to include savings and checking accounts, cash on hand, stocks, bonds, and mutual funds, and investment accounts. Most people also choose to include their retirement accounts, even though they would prefer not to liquidate these accounts immediately.

In the asset column, you may also consider including “soft” assets such as real estate and cars. Soft assets can be difficult to determine the actual value of; objects such as jewelry and antiques must be appraised by a professional. Soft assets also have a tendency to change in value less predictably than hard assets such as cash. Because of this, some people choose to leave these types of assets out of their net worth calculation, while other people choose to use the smallest assessed value of these objects in their calculation.

In the other column, list all liabilities. Be sure to include any debts, including mortgages, car loans, credit card balances, past due taxes, and any other debt. Do not include recurring bills that are not tied to loans, such as electric or insurance bills.  Although these are expenses that you can expect to have to pay, they are hard to predict and therefore usually not included in the calculation of net worth.  Also, be sure to subtract any future liabilities, such as balloon payments on loans.  For a true net worth calculation, use the principal balance on each of the loans, rather than the total amount that would be paid after interest is added.  Net worth is only a snap shot of your present financial situation, so only use the amount that would need to paid today in order to pay off the loan.  

Once the assets and liabilities in each category have been listed, total them, then subtract the liabilities from the assets. A positive result means that you have a positive net worth, while a negative result means you have a negative net worth. If the result is negative, it isn’t necessarily a bad thing.  Plenty of people who are starting out in life have negative net worth. The important thing to remember is that net worth only shows a small part of your financial picture.