What is Net Worth? How Do You Calculate Net Worth?

Determine your financial position by comparing your total assets and your total liabilities.
Determine your financial position by comparing your total assets and your total liabilities. | Source

What is it?

Net Worth is a number that is used to indicate your financial position. It is a snapshot of how you are doing economically at any given time.

It is used to measure how you are doing financially at the current time, and is a useful money management tool to compare your financial position over time.

The calculation of is very simple and straight forward:


Net Assets - Net Liabilities = Net Worth


This article will go further into detail about the numbers that go into this calculation, and give you some Millionaire Tips on how to increase your net worth.

The first step in performing the calculation is to make a list of your total assets and your total liabilities. Use the following lists to determine your total assets and your total liabilities.

Assets

Make a list of your total assets. These are items that can be sold to provide you with money. These are some assets that you can use in your net worth calculation:

  • Savings Account (bank statement)
  • Stocks and Mutual Funds (brokerage fund statement)
  • CDs and Other Investments
  • House(s) (county auditor's tax value)
  • Car (Blue Book value)
  • Boat
  • Jewelry, Antiques and Collectables

Since it would be impossible to get an actual price of these items without actually selling them, you can try your best to determine the current resale or market value of each of your assets. Try to get the value of these items as of one particular day. In some cases, you may not want to get an appraisal of all of your collectables every year. You can simply estimate based on the last appraisal.

Total up the numbers on this list to get your total assets.

There are things you own that you probably do not want to include in your calculation. They would be too difficult to include because of the quantity, and probably will not bring you a lot of money. Do not include clothing, furnishings, office supplies, household goods, and the like, since they will not hold their value over time.

Net Worth on Amazon

Liabilities

Since most people also have money they owe to others, this amount would have to be paid off before the assets are truly yours. Use the principal balance of these loans instead of the payment amount. Make a list of your total liabilities to include items such as:

  • Mortgage
  • Home Equity Loan
  • Student Loans
  • Car Loan
  • Personal Loans
  • Ongoing Credit Card Debt - do not include accounts you pay off every month

Total up these numbers to get your total liabilities.

Measure your financial position by subtracting your total liabilities from your total assets.
Measure your financial position by subtracting your total liabilities from your total assets. | Source

Calculate Your Net Worth

Once you have determined your total assets and your total liabilities, the calculation for net worth is very easy. Simply subtract your total liabilities from your total assets. The answer is your net worth.

You can do this calculation on a piece of paper, a calculator, a spreadsheet, an online net worth calculator, or on some accounting software.

Analyze Your Net Worth

A positive number means that you have a positive net worth. You are able to meet all of your debts with your assets. You can use your positive number as a comparison over time, to see if you can increase your net worth.

A negative number means that you are not doing as well financially. Remember that this number represents your economic condition, and not your worth as an individual. It simply means that you cannot meet all of your debts with your assets. You will need to work even harder to increase your number, but it is something you can do. Many people have been able to move from a negative net worth into a strong positive position.


Let's take a break to watch a video that recaps what we have learned so far. After the video, we will discuss how to increase your net worth.

How to Increase Your Net Worth

Once they have determined their number, most people want to work towards increasing it. They enjoy seeing this number increase from year to year. How do you increase your net worth? Since there are two factors in the calculation, your total assets and your total liabilities, working on either one can help you increase your net worth. Working on both will help you increase your number even faster.

Increase Assets

To increase your net worth, you can increase your assets. When you make decisions on how to prioritize your spending, you can try to spend your money on things that will increase your assets. Instead of buying furniture or a new pair of shoes, for example, you can work on a home improvement, or buy an investment. In this way, your net income becomes an important part of a money management strategy that is sure to help you increase your bottom line.

Reduce Liabilities

Another way to increase your net worth is to reduce the amount of money you owe. By paying down the principal of your loans, you will be in a better financial position. You might want to consider living more frugally so you have more money available to pay down your loans. Avoid buying anything on credit to make sure that your economic position is always headed in a positive direction.

What is Your Net Worth?

  • Under $25,000
  • $25,000-99,999
  • $100,000-$250,000
  • over $250,000
See results without voting

Financial Planning

This simple calculation is an important tool in a strategy of financial planning. You can make sure your money decisions are wise ones since they are focusing on a particular goal.

In addition, by analyzing your financial worth from year to year, you can track your process on achieving your money management goals. Having just one number makes it easy to measure your current status, and the changes help show you how your financial decisions are affecting your bottom line. You can easily find out if a decision is impacting you negatively, and can make efforts to correct the course in your life.

More by this Author


Comments: "What is Net Worth and How Do You Calculate It?" 19 comments

Millionaire Tips profile image

Millionaire Tips 4 years ago from USA Author

Thank you cyoung35. I don't think most people even get a chance to learn about net worth in school. I agree that learning how to figure your net worth is important because you can then see how to increase it. So many times it is difficult to choose how to allocate your earnings - should you buy a car or save money for a house? And by thinking about your net worth, you will be able to make wiser decisions.


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA Author

Thank you rajan jolly. I am glad that you were able to get your net worth from negative to positive. I wish you the best and hope it keeps growing even more positive.


cyoung35 profile image

cyoung35 4 years ago from Corona, CA

I guess I should have paid more attention in college about this subject. I think we should all learn how to figure our net worth because it keeps some of us from spending on a whim.


rajan jolly profile image

rajan jolly 4 years ago from From Mumbai, presently in Jalandhar,INDIA.

Useful hub. Took me back in time. The net worth then was negative. Today, thankfully its positive.

Voted up, useful and I believe each one should be aware of one's material worth.


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA Author

Thank you ChristyWrites. I am glad your eyes stayed their beautiful sparky selves as they read this article. I hope you have a high net worth and that it keeps growing.

Thank you barbergirl28. I am sorry that the number was depressing for you, but you are right. Now that you have the number, you can monitor your progress and work out a strategy to increase it.


barbergirl28 profile image

barbergirl28 4 years ago from Hemet, Ca

How depressing... but on the other hand.... I know the number can always be improved! Interesting hub!


ChristyWrites profile image

ChristyWrites 4 years ago from British Columbia, Canada

I like the way you break down the notion of assets and really make it readable. Often finances give me a glazed look and your hub did not do that to me. A sign of good writing! Vote up and share for you.


novascotiamiss profile image

novascotiamiss 4 years ago from Nova Scotia, Canada

Alocsin: That's the wrong attitude that gets people into more and more trouble. The first step to getting out of debt is to do a full analysis and to make plans how you are going to tackle it. If you keep ignoring your financial status you will only dig yourself into a deeper hole and your debt will keep increasing and at one stage you won't even be able to sleep, you'll worry so much. The only reason why some people actually become millionaires is they don't act ignorant. They take financial responsability and they don't pay off high-interest credit cards and other debt.


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA Author

Thanks alocsin - it can be scary to look at your finances, especially if the numbers might be negative, but they might be as bad as you think, and once you look at them, you will be able to come up with a strategy to make them better.


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA Author

Thank you Joffrey, I am glad that your net worth is on the upward trend.


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA Author

Thank you Pamela99, Green Lotus and teaches12345.

As the economy changes and my investments change, it helps me a great deal to see how my net worth is affected, so I can make sure I am on the right track.


alocsin profile image

alocsin 4 years ago from Orange County, CA

I think I'd be af to calculate this only because the number would probably be in the negative. But the formula looks sound. Voting this Up and Interesting.


teaches12345 profile image

teaches12345 4 years ago

This is great info to have in knowing important financial status and will help to plan for future savings.


Green Lotus profile image

Green Lotus 4 years ago from Atlanta, GA

I like your clear and simple approach! Thanks!


Pamela99 profile image

Pamela99 4 years ago from United States

This is a very informative hub. We should know our net worth and how to plan for the future. I remember my accounting class also and yes it was boring. LOL Now I know how important it is to know these things.


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA Author

Thank you Ttoombs08 and novascotiamiss. As boring as my accounting classes were, I apparently learned a great deal from them that are useful throughout life. These aren't things that are taught to all students - you do have to take an accounting class to learn them, so it is up to the parents to teach their kids about this valuable life lesson.


novascotiamiss profile image

novascotiamiss 4 years ago from Nova Scotia, Canada

Useful information, although I find it a bit sad that the current school system does not teach kids this vital information. If we all learnt at an early age that your liabilities should never exceed your assets the world would not be in such a state right now.


TToombs08 profile image

TToombs08 4 years ago from Somewhere between Heaven and Hell without a road map.

I just had flashbacks to my college accounting classes. ew! Thanks for the refresher! :) Great information and great hub. Voted up and more! :)


Joffrey Long 4 years ago

Thanks for providing this post. In a world desparate for good financial advice, this is clearly presented, and a lot of people can benefit from following this first step.

For those that already have looked at their basic net worth, the next step might be to look at their "investment net worth" or the net worth exclusive of their home, furnishings or personal property. For those fortunate enough to have significant equity in a personal residence, their net worth can be misleading. A large net worth consisting primarily of equity in a personal residence doesn't really help someone's finances outside of providing low or no house payments or sales proceeds if you decide to sell.

I hope these thoughts are helpful. Thanks again for a great article.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working