What’s your Net Worth?

Your Financial Report Card

Calculating your Net Worth

Have you ever wondered if you are making financial progress?

Have you ever tracked your progress monthly, quarterly, yearly?

Calculating and tracking your Net Worth monthly, quarterly, or yearly will help you track your progress.

If this is your first time calculating your Net Worth, you may be surprised. Calculating your Net Worth the first time is definitely eye opening. (You may want to pour yourself a drink, if you are of legal age.)

Your Net Worth is a point in time calculation of your Assets minus your Liabilities.

Let’s start with simple definitions of Assets and Liabilities.

Assets are anything that you own.

Liabilities are anything that you “owe" (debt).

Examples of Assets: Cash (Checking, Savings), 401ks, Roth IRAs, IRAs, HSAs, Investment Accounts, your House.

Examples of Liabilities: Credit Card Debt, Student Loan Debt, Medical Debt, Car Loans, Personal Loans, Home Equity Line of Credit Debt, Mortgages.

If you have a house (and a mortgage) you have both an Asset and a Liability. As you pay down your mortgage, you build equity in your home. The amount that you still owe on your mortgage should go into the liability category. The amount of house that you own, is an Asset. If you have been making mortgage payments, your Assets are increasing and your liabilities are decreasing.

Example: You bought your house for $200k. You made a down payment of $30k, and took out a $170k mortgage. You would put $30k in the Asset Category under House, and $170k in the Liability Category under Mortgage.

Now that we have defined Assets and Liabilities, lets get to work.

  • Step 1: List out all of your assets. You can break them in to Categories - Savings, Emergency Fund, 401k, Roth IRA, HSA, Investment/Brokerage Account, etc.

  • Step 2: List the value of each of the assets from Step 1.

  • Step 3: Total the value of all of your Assets.

  • Step 4: List out all of your Liabilities.

  • Step 5: List the amount owed for each Liability.

  • Step 6: Total the value of all of your Liabilities.

  • Step 7: Subtract the Total Value of Liabilities from the Total Value of Assets. (Assets - Liabilities = Net Worth)

Well.?.?.? How does your Net Worth look?

There are 2 ways to increase your Net Worth.

  1. Decrease your Liabilities (Pay off debt)

  2. Increase your Assets

Maybe this was your “Aha” moment.

 FAQs

  • Add up all of your Assets (things that you own), Add up all of your Liabilities (things that you owe/debt), and subtract Total Liabilities from Total Assets.

    Total Assets - Total Liabilities = Net Worth

  • It depends..

    Personally, I like to calculate my Net Worth monthly, to see the progress I am making.

    You can calculate it monthly, quarterly, yearly. It is up to you.

  • Try to calculate your Net Worth on the same day each month, quarter, or year.

    If you are calculating your Net Worth monthly, you may want to calculate it on the 1st of each month (or the last day of the month)

    If you are calculating your Net Worth quarterly, you may want to calculate it on January 1st, April 1st, July 1st, October 1st.

    The important thing is consistency.

  • It depends.

    I like to be conservative on my Net Worth. Cars go down in value/depreciate, so I do not add my car to my Net Worth.

    If you have a car loan, your loan should definitely be calculated as a Liability into your Net Worth.

  • If you have debt, pay off your debt as fast as possible. Reducing Liabilities, even if you do not increase assets, will increase your Net Worth.

    Example: Your Assets total $25,000 and your Liabilities total $20,000 = Net Worth of $5,000.

    If you reduce your Liabilities by $5,000, your Net Worth is now $10,000. Your Assets total $25,000 and your Liabilities now total $15,000.

    Once you pay off your debt, you can take the money that you were using to make payments, and invest it into assets, such as your retirement accounts and savings.