When you see information about net worth, it’s usually focused on celebrities. But everyone has a net worth, even if you don’t have millions of dollars to your name.
Your net worth is a reflection of what you own in assets minus any debts. A positive net worth means you have assets with a value over what you owe, and a negative net worth reflects the opposite.
If you want to know your net worth, here’s how you calculate it.
Collect Financial Information
To calculate your net worth, you’ll need a few pieces of financial information. This includes details about any real estate in your name and vehicles you own as well as mortgage, bank, credit card statements, loan, and life insurance statements. If you have investments, like retirement or brokerage accounts, you need records for those too.
Calculate Your Assets
Now that you have your information gathered, it’s time to figure out the value of your assets. Usually, this means identifying your largest assets, like your home, vehicles, or other real estate. Business owners may also want to add in the value of their business. Use current market values for your figures, erring on the side of conservative, adding up the total as you go along.
Next, focus on your liquid assets. This is usually bank accounts, cash, CDs, or any other investments, like retirement or brokerage accounts. Add these values to your running total from above.
Finally, examine your personal items to identify those with value. This can include jewelry, certain collectibles, firearms, and anything else worth at least $500 in today’s marketplace. Add those amounts to your running total, and you have the value of all of your major assets.
Calculate Your Liabilities
The next phase for calculating your net worth is to total up your liabilities. Start with your most significant outstanding debts, usually home, business, and vehicle loans, adding these values together.
Then, move on to personal liabilities, like personal loans, credit cards, and student loans. If you owe other debts, such as to the IRS, family members, or friends, you should include those as well. Add all of your liabilities together to obtain a final total.
Calculate Your Net Worth
With your asset and liability totals in hand, the rest of the process is simple. All you need to do is subtract your liabilities from your assets.
The number may be positive or negative, depending on your previous calculations. However, even if it is negative, don’t worry. Understanding your net worth today gives you valuable information. Plus, you can improve it over time by paying off your liabilities.
Using Your Net Worth
Now that you know your net worth, you can use it to monitor your financial situation. Use the process above to recalculate your net worth every year, tracking any change over time. This allows you to see whether you are making forward or backward progress, which is incredibly useful. Further, it’s potentially quite inspiring, especially if you get to watch your net worth increase year-over-year.
Improving your net worth isn’t inherently challenging, even if it appears so on the surface. All you have to do is reduce your liabilities and/or acquire more assets. Even small steps forward help. So, calculate your net worth today so you can monitor your financial health over the long-term.
Looking for more great articles from All Things Finance? Check these out:
- Using Cost-Effective Upgrades to Increase Property Value
- 3 of the Best Ways to Get Out of Credit Card Debt
- Small Business Loan Do’s and Don’ts
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.
