Jan. 8, 2019
739 words long, 4 minute read
If you have read any personal finance sites, a stat that people often talk about is their net worth. Bloggers often write status reports that include their net worth on their path to fire. Platforms like Mint or Personal capital can help in calculating your net worth, but I find them to always be slightly off. Sometimes these platforms don't support your bank or investment account and you end up calculating it yourself anyways. I find it best to go to pen and paper and calculate your net worth yourself for complete accuracy.
If you want to figure out what your net worth is by doing it yourself, you've come to the right place. We will teach you how to calculate your net worth to give you a clear idea of where you sit.
We should note that when you say "net worth" it means something different for every person. Some people think cash and cash equivalents while others might think of just investment value. For our purposes we are going with the "traditional" definition where net worth is a snapshot of the worth of your entire financial life.
Get content that helps you save and make more money right in your inbox
Net worth means the entire value of all of your assets minus debts and liabilities. It is meant to be a quick snapshot of your complete financial picture. It indicates your total "value" in a financial sense
In a perfect world your net worth will always be trending upwards. Staying consistent with paying down debt and investing should keep driving your net worth upwards. Some factors that would drive down your net worth could be market downturns, taking on more debt, or drawing down on your investment assets.
Some of the items that make up your assets could be:
There is a debate on whether you should include your house in your net worth. Most people do and in the examples we will run through I will include house as part of your net worth. The main argument against including your home in net worth are:
Being that calculating your net worth is a personal endeavor, I honestly would do whatever you think is best. It's not too difficult to calculate both with and without home equity to see where you stand as well.
Your liability will include debts and liabilities like:
Given that home mortgage debt can often be in the hundreds of thousands, you could possibly have a negative net worth. This situation is more common than you would think and it isn't necessarily a bad sign. Knowing your net worth then gives you the information you need to choose what you want to prioritize. You could choose to pay down debt fast, continue to buy more real estate, etc.
With all this run up, let's get into actually calculating the thing.
The formula for calculating your net worth is:
the sum of all your assets - the sum of all your liabilities
The formula is dead simple, the hardest part is actually tracking down everything. I find it useful to create a list of all of my assets and liabilities on separate tabs in excel. I write them all down and double check that I haven't forgotten anything. Then I use the SUM function in excel to easily add up everything in my list.
To illustrate the formula above let's run through a quick example. Our example person has the following assets:
They then have the following liabilities:
Let's sum up all assets: $27,500 + $9,500 + $6,000 + $250,000 = $293,000
And sum all liabilities: $17,000 + $187,500 = $204,500
Then use our formula: $293,000 - $204,500 = $88,500
Not too shabby! Notice how the mortgage offsets the home value to only count home equity towards the net worth. This person already has a tidy net worth and as they pay down their debts it will continue to grow.
Are you already calculating your net worth? What are you using to track all of your accounts? We would love to hear how others are using their net worth to help them make more informed financial decisions!
📈 Track your progress over time towards FI
🏆 Stay motivated with weekly reminders and earn achievements
🔬 Run "what if" scenarios in our data lab to simulate different paths to FI
🧠 Get insights on where you stand and how to reach your goals faster
🚫 We don't ask for any bank dataSign Up