How to Calculate Net Worth – What Are You Worth?

By in Wealth

What is Your Net Worth? Get Rich Step by Step-by-Step

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”  ~Ayn Rand

The first step in creating a fitness and diet plan is to step on the scale. Nobody likes to get weighed, but you have to accept where you are right now, before proceeding to change. It’s how you keep track!  

This article instructs in how to identify your financial baseline. Simply put, net worth is the total of your financial worth on a particular day. Net worth includes everything your own that could be converted into cash minus all the money you owe. Just like your weight, your net worth goes up and down. But, don’t worry about it; just get a ball park number. Remember, you don’t need to be perfect.

 

Why Calculate Your Net Worth?

Why do you need to figure out your net worth?

Why should you care about the value of what you own?

If you want control over your financial life – the opportunity to save for travel, college for your kids, a new laptop, and retirement – you must be aware of your financial footprint right now.

Would you begin a trip, check out the map app, and start driving if you didn’t know where you were?

Knowing your net worth is the same principle. Face up to your financial situation, and use it as a starting point to see if you are on track and able to meet your future goals. As you develop sensible money habits, your net worth will go up and you can use it to measure your financial progress. It is the yardstick to measure your money buildup.

An added bonus of knowing your net worth; after figuring out the value of all the stuff you own, most of which you never use, you may decide to sell some of it to get more cash! Then, you can use that cash for experiences or things that you really value!

How to Calculate Net Worth

It’s easy to figure out your net worth; as a matter of fact, you can even use a money management computer program like Personal Capital, Quicken by Intuit or Mint.com to computerize this basic money task. Although it takes some work at the outset to set up a money management computer program, in the long run it is a real time saver and gives you valuable insight into your financial picture, at a glance.

Inspiration; Go Beyond Keeping up With the Jones’ – Change Your Perception, Change Your Net Worth

Step 1 to Calculate Your Net Worth – Your Assets

For the old school method, gather all of your financial statements: bank account(s), investment account(s), retirement account, old savings bonds stuffed in a drawer. These are called Financial Assets. They are cash or can be converted easily into cash. Ballpark the value of your home, vehicles, and possessions.

Print out the article and complete the charts, or set up an excel sheet.

LIST ALL OF YOUR ASSETS

LIST ALL OF YOUR ASSETS & TOTAL

Congratulations, Step 1 is done!

Step 2 to Calculate Your Net Worth – Your Liabilities

Wouldn’t it be great if your total Assets equaled your Net Worth?

Unfortunately, for most people, they don’t. To continue with your financial weight, or Net Worth, you need to subtract what you owe from what you own.

Follow these steps, and before you know it, you will have your current financial picture and an important part of your money education will be complete!

Gather all of your debt statements; that includes mortgage, credit card, student loan, personal loan, and any statement showing now much you owe. This step is painful, so do it quick to get it over with. Next, fill in the Liabilities chart. Or, use an online financial management app

 

net worth_liabilities

LIST WHAT YOU OWE & TOTAL

Congratulations, you’ve done the heavy lifting. Get ready for the big finish. No matter how you net worth chart comes out, you know the truth and are beginning the tough path to money strength.

Step 3 – Calculate Your Net Worth

Next, subtract your liabilities from your assets. The result is your net worth.

net worth total

 

Whew, you did it! Give yourself a pat on the back for calculating your net worth. Now what? You have your financial net worth as of today, but what do you do with it?

Free net worth calculator and financial software (compliments of Personal Capital)

Are you on track to meet your future financial goals?

Your net worth tracks your financial progress. Ultimately, to keep your net worth growing you want to increase your assets like savings, investing and retirement accounts, while you reduce debt. You can also grow your net worth by paying off your mortgage. Also, if your home appreciates (goes up) in value over time that will also boost your net worth. 

Watch out for your vehicle, no matter how sweet, it usually falls in value and depreciates your net worth. 

The beauty of a growing net worth is that the assets you amass, free you from financial stress and can be traded for time to pursue other activities. The greater your net worth, the more financial resources you have to fund retirement, pay for your child’s education, go on a vacation, work part-time or fulfill any other monetary dreams.

Check out your net worth every year or so and see if you are on financial track to meet your money goals.

 

Help-My Net Worth is Negative

What if your net worth is negative? Remember, it is just a starting point. Just like your weight or your fitness level, your net worth can change. But you must make it happen! You must get rid of debt to build net worth.

Ben Stein and Phil DeMuth in Yes, You Can Get a Financial Life! chastise the over spenders. Their no nonsense approach to money is right on target; you are only entitled to purchase what you can afford. They clobber the belief that you “need” the status items beyond your budget like the designer hand bag the stars’ carry and the exclusive resort vacation that you put on your credit card. You pay for those unnecessary extravagances with your future!

To keep your net worth growing, separate your needs from your wants. Fund your needs and prioritize your wants, based upon your extra cash. If you have debt, put the wants on hold until you’ve tackled your debt.

Bonus; Quicken vs Personal Capital – Which One is the Best Money Management Tool?

Grow Your Net Worth – Action Steps

  1. Commit to eliminating one debt.
  2. Choose the debt.
  3. Write down how much above the minimum you will pay each month to eradicate the debt.
  4. Find ways to save money.
  5. Increase your auto deposit into your 401(k) and your investment account.
  6. For a really simple way to calculate your net worth, check out this Net Worth Calculator at Financial Mentor.

Do you track your net worth? If not, what’s stopping you?

Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t personally believe is valuable.

Updated; September 21, 2018