Building your wealth

How to Calculate Your Net Worth

5 Minute Read

Financially speaking, everyone has a net worth. It's what you're left with after subtracting your liabilities (what you owe) from your assets (what you own).

Not to be confused with income – that's what you earn from your job and what's reported on an income-tax return – your net worth is a single figure that represents your financial standing. It can be negative or positive, large or small. While a $1 million net worth is often coveted in popular culture, there's no "right" number. Many people's net worth increases with age, though.

Importantly, a high income doesn't necessarily translate to a high net worth, which is why the latter is often a better benchmark for measuring wealth. Here's how to calculate yours:

1. List your assets
First, you need to list everything you own that has substantial value. While this does include some intangible assets like your investment accounts, it does not include your salary. Your income is part of your cash flow, not your net worth.

Here's what you should include:

  • Modes of transportation, including cars, motorcycles, and boats (note that there is a more complicated calculation to determine the actual value of depreciating assets like these, but we won't get into it for the sake of this example)
  • The market value of your home, if you own it
  • The cash value of a permanent life insurance policy
  • The balance of any retirement accounts
  • The balance of any taxable investment accounts
  • The balance of any savings accounts
  • The balance of any checking accounts

Some things you may consider including:

  • The cash value of any expensive jewelry, fine art, furniture, or clothing
  • Business interests
     

2. List your debts

Your debt is what you owe to creditors or lenders.

Here's what you should include:

  • The balance of any mortgage(s)
  • The total balance on any student loans
  • The balance of an auto loan
  • The balance of a personal loan
  • The balance of a business loan
  • The outstanding balance on any credit cards
  • Any outstanding tax liability
     

3. Subtract your liabilities from your assets
After tallying up the above figures, you'll need to subtract your liabilities from your assets. The number you're left with is your net worth.

But remember that net worth is a snapshot in time. If you're regularly making debt payments or saving automatically in your 401(k), for example, your net worth will rise over time. On the flip side, if you take out a new loan or rack up a big credit card bill, your net worth may fall. You can use an online tool to link up all your accounts and automatically update your net worth and track it over time.

Net worth isn't the be-all and end-all when it comes to financial health, but it can be a simple and valuable tool for tracking progress toward your financial goals.

 

This article was written by Tanza Loudenback from Business Insider and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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