Calculate Your Net Worth

You might think that estimating one’s net worth is little more than an exercise for individuals with plenty of money, but it is in fact a useful way for people of all financial backgrounds to get a picture of their financial situation. Calculating net worth is not complicated, and involves subtracting your liabilities (what you owe) from your assets (what you own) to see how much is left over.

Steps

Adding Together Assets

  1. Understand what net worth is. Before calculating net worth, it is important to know what it is, and its purpose. The easiest way to define net worth is that it is what you own, minus what you owe. Net worth is how much you would have left over if you were to take everything you own, sell it, and use the proceeds to pay off what you owe.
    • Your net worth gives you a good idea of your overall wealth and the health of your financial situation. For example, if you have plenty of debt, and own very little, your net worth would be negative, which means your financial situation may not be healthy.
    • This is because if you own a $1,000 computer for example, but owe $20,000 in debt, if you subtract what you owe (the debt) from what you own (the computer), you still owe $19,000. Because you owe $19,000, your net worth would be -$19,000.
    • On the other hand, if you own a home worth $100,000, a car worth $20,000, and have a $50,000 mortgage, your net worth would be a positive $70,000 (or $120,000 of assets minus your $50,000 mortgage liability).
  2. Assess what you own. What you own is also known as your assets. This component of calculating net worth really is as simple — and possibly daunting — as making a dollar value estimate of everything you own, from the car you drive to the contents of your sock drawer.[1]
    • Don’t worry yet about determining the amount you owe on things like your house or car; that work will come with your liabilities. The focus now is on establishing the market value of your possessions. That is to say, how much your possessions would sell for if you were able to sell them today.
    • Start your asset counting by making an outline with the following categories:
    • Cash & Cash Equivalents.
    • Investments
    • Retirement Funds.
    • Home.
    • Home furnishings and valuables.
    • Automobiles.
    • Other.
  3. Count up your cash. Cash is a type of asset. This includes the contents of your bank accounts (like checking, savings, or High Interest Savings Accounts), any physical cash you have on hand, or any cash in investment accounts.
    • Let’s say, for example, that you have $3,000 in your checking account and $17,000 in your savings account, for a grand total of $20,000 in cash (running total: $20,000).
    • Be careful not to count the value of investments as cash. For example, if you have a Roth IRA account with a mutual fund worth $5,000 in it, do not count that mutual fund as cash, because it is an investment.
  4. Include the cash value of any life insurance policies as cash. Perhaps your parents bought you a policy as a kid, or you signed up for one yourself or through work. If it is a whole life policy that builds cash value, then that cash value is part of your assets.[2]
    • If you own a whole life insurance policy, there are two values linked to it — cash value and face value. When you pay premiums, part of the premium goes to paying the cost of insurance, and the remainder goes into a cash fund. The value of the cash fund is known as the cash value. The face value is the amount your family receives if you were to die (or the cost of the insurance). If you were to close the policy early, you would receive the cash value.[2]
    • Count cash value — the amount you would receive if you closed out the policy — not the face value, as being an asset.
    • The cash value of a whole life policy typically builds up slowly to the point where it equals the face value once you reach the end of the mortality table used to establish your policy (often at age 100).[3]
  5. Include investments and retirement accounts. Whether you have a substantial portfolio or have just started investing, the current dollar value of such investments is another portion of your overall assets. Investments include things like stocks, bonds, mutual funds, or exchange traded funds.
    • Let’s imagine that you have $5,000 an investment account. This would give you a running total of $25,000 in assets. Note that running total simple means adding up everything we have so far, so $20,000 in cash plus $5,000 in investments equals $25,000 of total assets.
    • As you are more than likely dealing with hypotheticals and not actually “cashing out” your assets, it is probably unnecessary to factor in any withdrawal penalties for removing funds from an investment account. But it can’t hurt to be familiar with the details of any penalties you may face in the future.
  6. Total up retirement account balances. If you have a defined contribution account with your employer, like a 401(k) or 403(b), or an individual retirement plan like an IRA or Roth IRA, these count towards your assets. These are separate from investments, as they cannot be easily liquidated.
    • For example, imagine you have $15,000 in a 401(k) account with your employer. This bring your running asset total to $25,000 + $15,000, or $40,000.
  7. Determine your home’s value. This is where things get a bit more speculative. Instead of counting up funds, you have to make a best guess about the value of what is likely your most valuable possession — your home.
    • You need to establish the fair market value for your home — the amount you could expect to fetch for it if you put it on the market. The most common way to do so is by finding the sale prices for comparable properties, which are those similar in location, size, age, condition, style, number of bedrooms/bathrooms, etc.
    • How to Determine Market Value for Your Home offers many ideas on identifying “comps” and establishing market value, including: consulting newspapers, real estate websites, and local tax offices/websites; talking with a real estate agent; and having an appraiser do the estimating for you.
    • For this exercise, we will say that your home is valued at $150,000 (running total: $190,000).
  8. Estimate the value of everything in your home. This is likely to involve even more speculating and estimating. You will probably be surprised by the amount you get, as the average single renter in the U.S. usually has $20,000–$30,000 in such personal property. One of the best tips to estimate the value of things in your home is to search the item on Google.com or Kijiji.com to see what the used item is selling for on the market.[4]
    • This is a useful exercise not only for determining your net worth, but also for figuring out how much renter’s or homeowner’s insurance you should carry. Having a detailed list of your possessions — including photos, if possible — will also come in handy if you ever need to file a claim.
    • For insurance purposes, you probably want to determine the replacement value for your things — what it would cost to actually replace them. For your net worth, however, you simply want to establish the market value — what someone would pay for them as is.[4] For instance, you might be able to sell your five-year-old TV for $100, but replacing it with a comparable new one might cost $250.
    • We’ll pretend your household possessions add up to $25,000, for a running total of $215,000.
    • Be careful not to double-count anything. For example, you have already estimated the value of your home, therefore, you need to make sure that anything that was part of your home value is also not added to your list of valuables in your home. Generally speaking, if it is not staying in your home when you sell it, you can add it your list of valuables in your home.
  9. Consider your car’s value. Again, this involves some guesswork, but thankfully there are numerous resources for establishing the market value for automobiles.
    • The traditional “blue book” for car valuations is now more easily utilized online, along with many competing car valuation and/or car-buying sites.
    • You can also ask a car dealer for an estimate; if he or she has any inkling that you may want to buy a car, a dealer will likely be happy to do this for you.
    • For our sample running total, let’s add $25,000 for your car to make it $240,000.
  10. Consider any other types of assets. Remember if you own it, it is an asset. You may have some debt on that asset (like a car you borrowed money to own for example), but that debt will be subtracted later on in the net worth calculation. Don't forget to include the value of any business you may own for example, or any additional property (like a cottage).

Adding Together Liabilities

  1. Know what you owe. "Liabilities" is a word that simply describes what you owe. If your assets constitute the monetary value of what you own, your liabilities include the dollar value of that which you owe.[1]
    • One somewhat morbid way to look at it is: if you were to die today, what amount would it take to “settle up” your estate?
    • By and large, your liabilities are more readily available and less speculative than your assets; usually your are entering specific amounts owed instead of estimating the value of your home, car, etc. This means that unlike determining your home value for example — which you may need to estimate — determining your mortgage debt value requires no estimate because it is simply the balance that is listed in your account as owing.
    • For the purpose of adding up liabilities, make two lists, one for secured debts and one for unsecured debts. Try using the following categories:
      • Secured
        • Home mortgage
        • Automobiles
      • Unsecured
        • Credit Cards
        • Bank loans
        • Student Debt
        • Other
  2. Determine the value of your mortgage. If you’ve recently purchased a home, the amount still owed on your home loan (or mortgage) is likely to be your single largest debt.
    • Technically speaking, the amount you owe will be a bit more than your total balance due — for an explanation why and instructions on how to calculate this amount, see Calculate Mortgage Payoff.
    • For simplicity’s sake, however, your balance due is sufficient, and readily available on your monthly statement. As an example, let us assume that you owe $120,000.
    • Contact your bank or mortgage provider if you have any questions about determining the value of your mortgage.
  3. Count up your car loan(s). If you don’t own a home or are close to paying it off, your car loan may be your largest outstanding debt.
    • Determining the value of your car loan(s) is as simple as going online to your bank or lender website, or looking at your monthly statements, and adding together the value of any car loans you may have. Assume you owe $15,000 on one car loan (running total: $135,000).
  4. Add credit card debt. Any amount due on a credit card account is also a liability and needs to be included. Make sure you include the total amount due, not the minimum balance due on your statement.
    • Let’s add $10,000 in credit card debt to our example, for a grand total of $165,000.
  5. Include any student loans. If you went to college recently (or perhaps not so recently), you may owe student loans. Include the balance due for these, along with any other personal loans you owe.
    • For our example, we’ll say you owe $20,000 in student loans, for a running total of $155,000.
  6. Consider any other liabilities. Anything you owe to somebody is considered a liability. This means if you owe $5,000 to your parents for example, this would need to be added. In addition, make sure not to forget any outstanding bank debt like lines of credit or loans for other types of property
    • The value of these debts would be added to the total liabilities you have.

Calculating Your Net Worth

  1. Add up your assets. To recap our examples from the prior section:
    • Cash: $20,000
    • Investments / Retirement: $20,000
    • Home: $150,000
    • Personal Property: $25,000
    • Car: $15,000
    • Life Insurance: $10,000
    • Total: $240,000
  2. Add together your liabilities. Again, from our sample estimates:
    • Home Loan: $120,000
    • Auto Loan: $15,000
    • Student Loans: $20,000
    • Credit Card Debt: $10,000
    • Other debt: $0
    • Total: $165,000
  3. Subtract liabilities from assets. Gathering up all the various dollar values is the most difficult part of this exercise; the actual calculation is quite simple.
    • That said, there are numerous online net worth calculators that can do the calculating for you, and which may help you keep your data more organized.[5]
    • Using our examples: $240,000 (assets) - $165,000 (liabilities) = $75,000 (net worth).
  4. Reassess your net worth regularly. Think of your net worth calculation as a snapshot in time. As you make money, borrow money, and spend money, your net worth will be in a constant state of change.
    • Experts often advise that your calculate your net worth at least annually. This will help keep you on top of your changing status due to changes in the market, alterations in your finances and personal life, and so on.[6]
  5. Consider courses of action. First of all, don’t panic if you have a low positive or even negative net worth, especially if you are younger. Young adults with student loans and who don’t own a home often have a negative net worth.[1]
    • Regardless of your place in life, if your net worth is low, negative, declining, or unpredictably fluctuating, use this as an opportunity to more closely examine your finances and consider ways to improve them.
    • In your particular circumstances, paying down credit card debts, or saving more, or refinancing your mortgage, or selling some of your stuff may be the way to go.
    • Remember that your net worth is a guide, not a judgement. Use it as information for your benefit.



Tips

  • Be completely honest about all numbers. Don't embellish your assets or detract from your liabilities.
  • Enter these figures into a ledger, and try updating it monthly. This will not only keep you accountable, but also give you a better example of your growth over time.

Related Articles

Sources and Citations

  1. ↑ 1.0 1.1 1.2 http://www.thesimpledollar.com/how-to-calculate-your-net-worth/
  2. ↑ 2.0 2.1 http://budgeting.thenest.com/whole-life-cash-value-vs-face-value-25511.html
  3. ↑ http://insurance.illinois.gov/Life_Annuities/FAQLife.asp
  4. ↑ 4.0 4.1 http://www.bankrate.com/finance/insurance/how-much-renters-insurance.aspx
  5. ↑ http://www.bankrate.com/calculators/smart-spending/personal-net-worth-calculator.aspx
  6. ↑ http://time.com/money/2791950/how-to-determine-net-worth/
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