How to Calculate Net Worth: A Step-By-Step Guide

Net worth is a key financial metric that provides a snapshot of your overall financial health. It represents the difference between what you own (assets) and what you owe (liabilities).

The Basic Formula

Net Worth = Total Assets - Total Liabilities

Assets to Include

Liquid Assets

• Cash on hand

• Checking accounts

• Savings accounts

• Money market accounts

• Certificates of deposit (CDs)

Investments

• Stocks

• Bonds

• Mutual funds

• ETFs

• Retirement accounts (401(k), IRA)

• Cryptocurrency holdings

Real Estate

• Primary residence

• Investment properties

• Vacation homes

• Land

Personal Property

• Vehicles (cars, boats, motorcycles)

• Jewelry

• Art collections

• Furniture

• Electronics

Business Assets

• Business ownership value

• Patents and intellectual property

• Business equipment

• Inventory

Liabilities to Include

Secured Debt

• Mortgage loans

• Home equity loans

• Auto loans

• Business loans

Unsecured Debt

• Credit card balances

• Personal loans

• Student loans

• Medical debt

Calculation Tips

1. Use Current Market Values

   • For real estate, use recent appraisals or comparable sales

   • For vehicles, consult resources like Kelley Blue Book

   • For investments, use current market prices

     
     

2. Be Conservative

   • Don't overvalue personal items

   • Account for selling costs when valuing assets

   • Include all debts, even small ones

     
     

3. Update Regularly

   • Calculate net worth quarterly or annually

   • Track changes over time

   • Adjust asset values based on market conditions

Common Mistakes to Avoid

1. Overvaluing Assets

   • Using purchase price instead of current value

   • Including sentimental value

   • Not accounting for depreciation

     
     

2. Forgetting Liabilities

   • Overlooking small debts

   • Not including upcoming tax obligations

   • Forgetting cosigned loans

     
     

3. Incorrect Categorization

   • Counting leased items as assets

   • Including non-transferable benefits

   • Double-counting joint assets

Special Considerations

Business Owners

• Include only your ownership percentage

• Consider both tangible and intangible assets

• Account for business liabilities

Joint Assets

• Include only your portion of shared assets

• Account for legal ownership structures

• Consider prenuptial agreements

Retirement Accounts

• Account for early withdrawal penalties

• Consider tax implications

• Include employer matches

Using Net Worth Information

1. Financial Planning

   • Set wealth-building goals

   • Track progress over time

   • Identify areas for improvement

2. Investment Decisions

   • Asset allocation strategies

   • Risk management

   • Portfolio rebalancing

     
     

3. Estate Planning

   • Tax considerations

   • Inheritance planning

   • charitable giving strategies

Limitations of Net Worth Calculations

• Does not reflect cash flow

• May not include future earning potential

• Values can fluctuate significantly

• Some assets are difficult to value accurately

Remember that net worth is just one measure of financial health. It should be considered alongside other metrics like income, expenses, and cash flow  when making financial decisions.

Net Worth Calculator

Calculate your net worth which is what you own minus what your owe. Enter your assets and liabilities into our free net worth calculator.