Make no mistake: You don't have to be a celebrity or a millionaire to have a net worth. Yes, you have one. Think about the money you've saved, the house or car you own, and the debt you owe. That all contributes to your net worth.
Here's a crash course on personal net worth, including what it is, why it's important and how to calculate yours.
What exactly does net worth mean?
Your net worth is the value of your assets minus your liabilities. Assets are everything you own—savings, investments, property. Liabilities are everything you owe—credit card balances, mortgages, any kind of debt.
While having a high net worth may seem like a worthwhile goal to many people, it is important to remember that this figure is just one part of the equation when it comes to achieving financial success. Calculating your net worth annually can show you how your overall financial situation has changed year over year. Ultimately, what truly matters is not how much money you've saved or earned over the years but how you choose to use those resources to build a future for yourself and your family.
So, whether you are just starting your journey toward building wealth or are already on the path to achieving your money goals, remember that net worth is only one piece of the puzzle.
What counts as part of my net worth?
To calculate your net worth, add up the total value of all of your assets and subtract any outstanding liabilities. Many things can qualify as assets and liabilities. Here's a handful of the most common ones to get you started:
Types of assets
- Cash. Savings accounts, certificates of deposit, money market accounts, etc.
- Investments. Stocks, bonds, mutual funds, retirement accounts, etc.
- Property. Owned real estate and personal property, such as vehicles or jewelry, etc.
Types of liabilities
- Consumer debt. Credit card debt, mortgage balance, auto loans, high-balance medical bills, etc.
- Unpaid taxes. Federal or state income taxes, property taxes, etc.
- Loans. Student loans, secured/unsecured personal loans, etc.
Note that your income and day-to-day expenses are not included as part of this calcuation.
How is your net worth calculated?
After compiling a list of your assets and your liabilities, you can find your net worth. Here is a clear-cut hypothetical example:
- Sammy has three assets: a home worth $500,000, 401(k) at work $100,000 and $30,000 in savings. Total assets = $630,000.
- Sammy also has a mortgage on that home with a balance of $250,000, a $25,000 car loan and owes $10,000 in credit card debt. Total liabilities = $285,000.
- Subtracting liabilities from assets gives Sammy a personal net worth of $345,000.
People want to know their net worth for different reasons. For some, it's a way to track their financial progress and keep their long-term goals aligned. For others, knowing their net worth just satisfies a curiosity about where they're at in life. Regardless of the reason, calculating your net worth can be a helpful exercise. It can give you a better understanding of your overall financial status and help you identify areas where you may need to make changes.
As you can see, Sammy's net worth is positive. However, those debts of $285,000 significantly outweigh Sammy's liquid assets of $30,000 in savings (while it is an asset, a home's value isn't liquid, or readily available for spending). After seeing these figures, Sammy might consider prioritizing paying down credit card debt or the car loan, while continuting to contribute to their 401(k) and savings account.
Why does net worth matter?
While your net worth has no reflection on who you are as a person, it is a helpful tool in understanding what you have vs. what you owe and can offer valuable insights. Finding your own net worth, however, may be a bit more complex than the example provided. In fact, calculating net worth can be an involved process depending on your stage in life.
Online calculators can help you figure out this number, or you can reach out to a
With the right team, knowledge and tools at your disposal, you can make more informed, holistic decisions about your money moving forward.