Your net worth is a simple indicator of your overall financial health. It is the total value of everything you own minus the sum of all your debts; that’s it. The higher your net worth, the healthier your financial situation. This number is how much cash you would have if you sold every possessions you own, emptied every account, and paid off all debts.

It’s especially valuable as a benchmark against your past and future selves just to see how much financial progress you are making. Think of your net worth at any given point in time as a snapshot of your finances. Much like leafing through an old photo album, these “snapshots” can be used to compare how your finances were at other times in your life.

Knowing how to calculate your net worth is the first step in this process, so let’s get started!

How to calculate your net worth in three easy steps

Step 1: add up your net worth

The first step in calculating your net worth is to make a list of all of yours financial assets. An asset is anything you have that has significant value. This includes cash that you have on hand, money in accounts, and so on. It also includes your most important possessions, such as your car or home. Focus on assets that have significant value. Don’t list everything you own. A good threshold is to focus on assets that you could easily sell for more than $ 100.

You can do a good job of assessing the value of your home using tools like Zillow, but make sure that Zillow’s estimate is realistic. You can get a good idea of ​​the value of your cars using the Kelley Blue Book.

Once you have a list of assets and their values, add up all of those values. That is the total value of all of your assets.

Step 2: add up your debts

The next step in calculating your net worth is to make a list of all of your debts. This includes things like your mortgage, your auto loans, your student loans, your credit card balances, and your payday loans. You should include personal loans on this list – if you owe your aunt $ 500, include her.

Once you have a list of all of these debts add them up. That’s how much debt you owe in total.

Step 3: subtract your total debt from your total assets

Now take your total assets from step one and subtract your total debt from step two. The resulting number is your net worth. For example, if you have $ 100,000 in assets and $ 20,000 in debt, you would calculate 100,000 minus 20,000 to get your net worth: $ 80,000.

Examples of wealth scenarios

Example 1: Steve, the new college graduate

Steve is in his early twenties and graduated from college last year. He does a good job but doesn’t have a lot of assets, only $ 20,000 mostly tied up in his car.

However, he has a lot of student loan debt ($ 50,000) and some credit card debt (another $ 5,000).

Steve’s fortune is negative $ 35,000. That’s OK. Negative net worth is a fairly common situation among college graduates with college debts. Steve has plenty of time to improve his situation, especially if his college degree helps him earn a higher salary.

Example 2: Mindy, in the middle of her career

Mindy is in her early 40s. She does a great job and has been contributing to her retirement fund for years, with $ 100,000 in credit. Go Mindy! She also has a $ 20,000 car and a $ 300,000 and $ 10,000 condo in her checking account. Her net worth is $ 430,000.

Mindy still owes $ 200,000 for her condo and $ 10,000 for her car, however. Thankfully, she left student loans and credit card debt, so her debt is $ 210,000.

Mindy’s net worth is $ 220,000: $ 430,000 minus $ 210,000. That’s a pretty good situation for someone in the middle of their career. Ideally, midway between college and retirement, you should have net worth that is higher than your annual salary, and better if it is much higher.

Example 3 – Terry and Chris, freshly retired

Terry and Chris are in their 60s. They are freshly retired. They own a home and land of their own valued at $ 500,000. You also have $ 1 million retired and two vehicles worth $ 25,000 each. They also have other assets – jewelry, checking accounts, and other items – totaling $ 30,000. The total value of her fortune is $ 1,580,000. You’re in pretty good shape for retirement.

Terry and Chris have little debt. You owe $ 10,000 for each car and $ 5,000 in credit card debt, for a total of $ 25,000.

Terry and Chris net worth is $ 1,555,000: $ 1,580,000 minus $ 25,000. They are in pretty good shape for retirement, especially with Social Security stepping in for them.

Track your net worth over time

Now that you know how to calculate your net worth, let’s focus on what it’s useful for: See your financial progress over time.

If you get into the habit of tracking your net worth somewhere (a Google Sheet is a great place) and do it regularly, you will see your financial progress over the years. Ideally, your net worth will continue to increase, although it probably won’t be a smooth increase.

Why isn’t it smooth? It’s because Life is not smooth. There will be times when there will be no major unexpected bills or crises, and times when there will be. There will be times when you will be careful with your spending and times when you will spend a little more freely. You will see these show up in your net worth over time. If things are going well and you have a good handle on your expenses and debts, your net worth will go up sharply. If you spend too much or have unexpected events in life, it won’t go up much and it can go down.

There are several things you can do to move your wealth in the right direction.

  1. Be careful with your expenses. If you are smart with your monthly bills and use lots of thrifty tactics on a day-to-day basis, your expenses will go down and that means more money will stay in your pockets. The money that remains in your pockets will eventually show up in your net worth (assuming you don’t just spend it elsewhere).
  2. Pay off your debt. Create and execute a debt settlement plan. Paying off debts quickly reduces the money you lose on interest.
  3. Save up for retirement and other big goals. Accumulated money increases your net worth. The returns you get from investing this money will grow your net worth even faster.
  4. Be diligent with your career. Move towards higher wages while preventing your expenses from growing with you.

We appreciate your feedback on this article. Contact us at [email protected] with comments or questions.


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