Net worth is one metric used to evaluate an individual's financial well-being. This number represents the difference between the value of what you own and the money you owe on it.
Understanding your net worth can help you set financial goals and monitor your progress toward them. Learn how to calculate your net worth so you can gain insight into how well you're managing your money.
What Is Net Worth?
Net worth is a snapshot of your financial health that represents the difference between your assets (what you own) and your liabilities (what you owe). If you sold everything you owned to pay off everything you owe, the amount of money you have left is your net worth. To calculate this metric, you'll need to use this formula:
How To Calculate Net Worth
Calculating net worth is fairly simple, but it may take some time to gather all of the information you need to do so. You need to know the current balances on all of your mortgages, loans and credit cards. You'll also have to determine the cash value of each of your assets, which may require additional research.
Here's a look at the steps to take to calculate your net worth:
STEPS TO CALCULATE NET WORTH
- List all your assets (cash and cash equivalents), such as:
- Checking and savings account balances
- Retirement accounts
- Assign each item a cash value.
- This is not necessarily the same as what you originally paid for the item; rather, it's what you could likely expect someone to pay for it.
- Add together these values to determine your total assets.
- List your liabilities (money you owe), such as:
- Mortgages and home equity lines of credit
- Credit card debt
- Add up the total dollar value of your liabilities.
- Subtract your liabilities from your assets to find your net worth.
Sara has a home worth $350,000, with $150,000 left on the mortgage. She also has $3,000 in credit card debt, $1,000 in medical bills and $11,000 left on a student loan. Her savings account balance is $10,000.
Here's a breakdown of Sara's net worth, which comes out to $195,000:
- Total assets: $350,000 + $10,000 = $360,000
- Total liabilities: $150,000 + $11,000 + $3,000 + $1,000 = $165,000
- Net worth: $360,000 - $165,000 = $195,000
Why You Should Calculate Your Net Worth
Calculating your net worth can help you assess your progress toward your financial goals. It might also show you opportunities to make changes.
For example, you might have more money in cash than you need for an emergency fund; you could invest that money for retirement or education savings.
Likewise, financial planners may use net worth to set goals for clients. It then becomes a measurement of how well the client is meeting their financial goals. A stalled or receding net worth may be a sign that it's time to consider different investment products or look for an additional income source.
If calculating your net worth annually shows your liabilities increasing more than your assets, it could be time to revisit your budget and figure out the best way to get out of debt.
Someone who has a negative net worth has more liabilities than assets. If they sold all of their assets to pay their debts, they would still have remaining bills to pay.
For example, a recent college graduate with student loan debt can have a negative net worth until they've acquired enough assets to pay the debt.
Your net worth should ideally increase over time as you pay down debt and increase the value of your total assets.
This article has been updated with additional reporting since its original publication.
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- Colorado State University Extension. "Net Worth Statements - Colorado State University Extension."
- Consumer Financial Protection Bureau. "Get money smart. 25 tips to improve your financial well-being" 24 Oct. 2019.
- First State Community Bank. "Understanding Net Worth: What Is It, Really? - FSCB." 3 Jul. 2019.