How to Calculate Your Net Worth and Why It Matters

There are numerous ways to assess your financial health. Your salary, savings account balances and home equity are just a few indicators.

But for a more comprehensive assessment of your finances, use the net worth formula. This number compiles all assets and liabilities into one number that simplifies things.

Assets

Calculating your net worth is an excellent way to assess where your finances stand in relation to your goals. It also allows you to assess if you’re on track with your financial plan or if changes need to be made in terms of budgeting or debt situation.

The initial step is to assess all your assets, including cash and liquid investments like stocks and bonds. Other items you may consider assets include your home and other real estate, jewelry, collectibles, vehicles as well as intangibles like personal networks.

Once you have a complete inventory of all your assets, subtract them from the sum total of all liabilities to calculate your net worth. This is the value of all your possessions less any outstanding debts such as mortgages or car loans.

Liabilities

Calculating your net worth begins by gathering all of your assets and liabilities. Assets include cash, short-term and long-term investments like stocks and bonds, business or rental earnings, as well as personal property.

Liabilities include mortgages, car loans, student loan debt, outstanding credit card debt, tax debt and alimony or child support payments. Keeping all your financial records organized makes the process of collecting these amounts simpler.

Calculating your net worth is simple: subtract all liabilities from the value of all assets. This number will give you your overall net worth, which can be positive, zero, or negative.

Income

Net worth is the amount left after deducting all liabilities from assets. It provides an overview of your finances, so it can help you gauge where you stand and how things are improving over time.

In general, having a healthy net worth is ideal to ensure financial security and leave something behind for loved ones when you pass away. While you don’t need to aim for any particular amount, calculating your net worth can provide valuable insight and give you the basis on which to make future financial decisions.

Assets refer to any possession that has monetary value, such as cash in your checking and savings accounts, property, cars and investments. Liabilities refer to any financial obligations you owe like mortgages, credit card debt or student loans.

Assets can be tangible (like real estate) or intangible (like holdings in a stock portfolio). Liabilities tend to be lumped together, but they may vary depending on your particular circumstances.

Taxes

Calculating your net worth is the first step toward taking control of your financial future. Not only will this give you a solid platform for short-term decisions, but also long-term objectives that will last years or even decades into the future.

Calculating your net worth begins by establishing the values of all assets and liabilities. Cash, bills that need payment, stocks or bonds may already have a value assigned; however other items require further investigation to ascertain their worth.

The next step in debt reduction is to subtract your assets from liabilities. Liabilities include personal loans, car payments, mortgages and credit card debt.