How to Figure Out Your Net Worth

This isn’t going to be an existential analysis of how much a person’s life is worth. Instead, let’s take a look at how you can figure out what your net worth is. It’s good to know your net worth because it might be taken into consideration when you apply for a loan for a large sum of money, such as with a mortgage loan or a new business loan. Lenders aren’t just interested in how you have made payments in the past; they actually want to know what you’re worth before they’ll give you some money.

It may seem a little weird to reduce your entire existence into a mere number, and it can be truly bizarre to actually see the number once all the calculations are complete. Keep in mind it’s just a number that indicates how much your assets are worth, and really has nothing to do with you as a person.

It’s simple to figure out your net worth. The simplified version of the equation goes like this:

What you HAVE subtracted by what you OWE equals your net worth.

The trick to getting an accurate number is to carefully examine what you have and what you owe. Don’t just think to yourself, “Well, I have two thousand bucks in my savings account, so my net worth must be two thousand dollars.” There is much more to it than that.

What You Have

When you think about your assets, start with the money you have in your various accounts:

  • Savings accounts
  • Checking accounts
  • Investment accounts
  • Retirement accounts

Most people forget retirement accounts when they start cataloging their net worth, but you’ll want to include these amounts in your net worth. Any other accounts that you have that are worth money – whole life policies, annuities, etc – should also be included in the sum. Don’t include term life insurance policies because these don’t have cash value unless you die.

What other assets do you have?

  • Jewelry
  • Furniture
  • Objects of art
  • Electronics and major appliances

You should think about how much money you would earn if you were to open the doors to your home and sell everything you own.

Cars and real estate are certainly considered assets too, but only after you subtract the money you owe on any loans associated with these items.

What You Owe

Take the amount of money you are worth after all your calculations of your assets, and then subtract everything you owe. Include all your debts, such as loans, credit cards, and the $500 you owe your parents.

You don’t have to subtract utility bills or any other recurring payments that aren’t consumer debt. For example, don’t write down your monthly electric bill as an item on the list of things you owe.  Think of it in these terms: If you were to die right now, what would your estate be responsible for paying off?

Your Net Worth

Subtracting what you owe from what you have gives you your net worth. Should you panic if your amount is a negative number? It does not necessarily mean that you will receive a denial for your loan application, but it’s something to keep in mind that you might want to rectify.

If you do want to increase your net worth it’s usually better to pay your debt down as opposed to going out and getting more assets.

This is an article from Jonathan of masteryourcard.com. Check out Jonathan’s post on the Fair Debt Collection Practices Act.

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Last Edited: May 8, 2014 @ 2:15 pm

Comments

  1. I prefer to keep my net worth calculations mostly liquid. I base it on our cash, retirement accounts, and debt.

    We owe $8,300 on our car, and KBB says maybe it’s worth $9k, but unless someone gives me $9k for it, I’m only considering it a liability at this point.

    My possessions don’t amount to much. Maybe I could get a f ew thousand if I sold EVERYTHING at a sale. But, that money only depends on if I actually sell everything for a decent price.

    So yeah, for me, it makes me more comfortable to just keep it to the figures I can count on, more or less (except for the 401k…yikes!)

  2. I definitely err on the side of too conservative a well. Two reasons I like to know my net worth: 1. Have a better understanding of our finances. 2. Have a metric to attached to a goal.

  3. Mine’s in the negative with plenty of zeroes on it, which is why we’re focused on paying off our debt. Credit cards are gone, one car down one to go, and those student loans on a 30-year note – we want to get those done in 6. It’s a long process but it will be worth it in the end.

    Nice blog PT – glad I found it!

  4. @ JFunk – Thanks for stopping by and commenting. I’m in the same boat as you: still have one car note that’s bugging me. And I think everyone’s NW has taken a big hit since stocks have been down so much. They’ll be back though. Thank again for stopping in and saying hi.

  5. PennyScraper says:

    I use mint.com to keep track of my net worth and also helps in monitoring my many accounts!You guys should check it out!

  6. I just started an account with Mint and I’m slowly adding all my accounts in (takes a while). It’s definitely easy on the eyes. I may do a review soon.

  7. @PT- Will keep an eye out for your review- I have not used Mint yet but am planning on it.

  8. Thanks for the replies, guys – glad you found this post useful :)

    PT – I’ve been looking at Mint for a while. Having to hand over my online banking username and password really turned me off though.

  9. Two things. First, business owners can and should include the value of their business. Also, acquiring assets that pay you more than you pay on the loan you took out to buy them IS smart, which is a little different than what you said at the end of the article. Of course, funding consumerism with debt isn’t great, but I don’t think that’s what you were trying to say.

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