Net Worth Calculator

Use our net worth calculator to calculate your net worth given all of your assets and liabilities.

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Your Liabilities
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How to Calculate Your Net Worth

Your net worth is simply the value of your assets minus the total of your liabilities. This is commonly used for businesses, but you would use the same net worth formula for an individual.

This calculation shows what is left if an individual’s or company’s assets and liabilities are liquidated. A positive net worth means that the value of the assets is greater than the value of the liabilities.

If the value of the liabilities is greater than the value of the assets, then the individual or business has a negative net worth.

Net Worth Formula

The net worth formula is shown below:

net worth = assets – liabilities

Thus, your net worth is simply equal to your assets minus your liabilities.

If you were to take a basic accounting course, you might see the formula rewritten as assets = liabilities + net worth, but the formulas are exactly the same.

The accounting formula is written differently than the net worth formula to show that assets are either funded from debt (liabilities) or equity (net worth).

These variables make up the balance sheet of a company.

The balance sheet ranks the different variable categories by how liquid they are. The liquidity of an asset is how easily it can be turned into cash.

The more liquid an asset or liability is, the higher up on the balance sheet it will be. The less liquid, the lower it will be on the balance sheet.

How to Calculate Your Assets

The first step to calculating your net worth is to aggregate or add up the value of all of your assets. The textbook definition of an asset is anything that provides a future economic benefit or value.

The most common forms of assets for an individual would probably be cash in the bank (checking or savings accounts), investments, vehicles, and real estate.

Businesses have other common assets that individuals typically won’t, such as inventory and accounts receivable, so we will just focus on the assets of an individual.

Cash

Cash, whether it be in the form of a checking account or savings account, is obviously the most liquid asset, so it would be at the top of the balance sheet. The value of your cash balance is the amount you have in the bank.

Investments

Investments are the next most liquid asset, so they would appear below cash on the balance sheet. Investments, such as stocks, can usually be sold immediately and turned into cash.

The value of the investments is what is shown in your investment or retirement accounts. The value of both cash and investments are easy to calculate since they are exactly what is shown in your accounts.

Real Estate and Vehicles

The value of vehicles and real estate is harder to calculate because you can’t fully know their value unless you put them up for sale or have them appraised.

Therefore, they are less liquid than cash or investments, but vehicles are more liquid than real estate. It would take some time for a vehicle to be sold, but it usually takes a few months or more for a house to be sold.

The best way to calculate the value of a vehicle is to use a car website to value it for you. There are websites, such as Kelley Blue Book, that value vehicles.

All you need to do is enter your vehicle’s information, and the website will provide the value. Do this for each vehicle you own, and this will be the total value of your vehicles.

Real estate can be valued the same way. There are home websites, such as Zillow, that will show your home’s value and the sales price of other homes that have recently sold. You can also pay a real estate appraiser to appraise the value of your home, which gives you a more accurate value than home websites, but it does cost a few hundred dollars.

How to Calculate Your Liabilities

After the total assets have been calculated, it is time to calculate the value of the liabilities. A liability is anything that is owed to another.

For individuals, this is primarily all forms of debt. Companies may have other forms of liabilities, such as accounts or salaries payable, but these are far less common for individuals.

Any form of debt should be included in the net worth calculation. This includes credit cards, student loans, personal loans, auto loans, and mortgages.

The value of any debt is just the balance of each debt you owe.

For example, let’s assume an individual has the following values for their assets and liabilities.

Assets

Checking Account: $5,000

Savings Account: $25,000

Retirement accounts: $100,000

Investment Accounts: $50,000

Vehicle 1: $20,000

Vehicle 2: $15,000

House: $300,000

Liabilities

Credit Card Balance: $10,000

Student Loan Balance: $20,000

Auto 1 Loan Balance: $7,000

Auto 2 Loan Balance: $10,000

Mortgage: $125,000

The total value of the assets is $515,000 ($5,000 + $25,000 + $100,000 + $50,000 + $20,000 + $15,000 + $300,000 = $515,000). The total value of the liabilities is $172,000 ($10,000 + $20,000 + $7,000 + $10,000 + $125,000). Now we can plug these amounts into the net worth formula.

net worth = $515,000 – $172,000
net worth = $343,000

This individual has a net worth of $343,000.

How to Improve Your Net Worth

The two ways to improve your net worth are to either increase your assets or decrease your liabilities. But let’s look at this in more detail.

Increase Assets

The first method is to increase your assets.

There are a few ways to do this. In the short-term, your assets will increase with each paycheck, assuming you are currently making more than you are spending on a monthly basis. Increasing your income gives you the best opportunity is your best method to increase your net worth.

In addition, you can focus on decreasing your short-term expenses that are not considered long-term debt. Some examples of this are meals and entertainment costs, clothing costs, or alcohol costs. By decreasing your short-term expenses, you will be able to devote more of your income to things that will increase your net worth.

There are also some assets that increase over time. Historically, investments such as stocks, bonds, annuities, and real estate increase or appreciate over time.

If the value of your investments or home increases, then so have your assets and, therefore, your net worth.

Some investments, such as savings accounts or CDs, may also pay interest, which continues accumulating over time.

Reduce Debt

The other way to increase your net worth is through the reduction of debt. This is not as easily done. If you lower your debt by making a payment, your net worth actually goes down slightly because your cash balance (an asset) declines.

Usually, the full payment towards debt does not go towards lowering the principal balance because part of the payment goes towards interest.

If someone helps pay down your debt or if the debt is forgiven, you can lower your debt. For example, if you have a parent paying your student loans, and they make a payment for you, your debt would fall, and your net worth would increase.

Or if you have a student loan with the government that is forgiven due to a prearranged agreement, such as a teacher working in a low-income school, the same thing would occur.

While paying off debt doesn’t exactly increase your net worth, it does get you closer to paying off the loan, which will then allow you to devote more of your income to activities that will increase your net worth.

Another method to lower debt is to reduce the interest you are paying on it. Refinancing debt or consolidating credit cards are a few ways to do this. These things can allow you to reduce the interest rate on your loans, increasing the amount of the payments that go towards the principal.

Overall, it’s important to understand your personal net worth so that you can understand your financial status, plan for your retirement, and develop solid financial plans to increase your future net worth.

Frequently Asked Questions

Does your personal net worth really matter?

Understanding your net worth is critical to understanding your financial status. It also helps you plan for your future and retirement goals.

What is the average net worth in the U.S.?

The median U.S. household’s net worth is around $121,000, per the Federal Reserve’s Bulletin on Changes in U.S. Family Finances from 2016 to 2019.[1]

Do retirement accounts count toward my net worth?

Yes, retirement accounts do count towards your net worth because they are considered liquid assets that can be withdrawn (with an early withdrawal penalty fee).

References

  1. Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances, https://www.federalreserve.gov/publications/files/scf20.pdf