How to Calculate Net Worth
Knowing how to calculate net worth isn't just for accountants. Calculating net worth gives you a clear picture of your finances and shows how your assets and debts balance out. It can help you decide if you're on track financially or if you need to change course.
Fortunately, figuring out your net worth is pretty simple. Here's how to get started.
When It's Helpful to Know Your Net Worth
Knowing your net worth comes in handy whenever you're wondering how you stand financially. Your net worth tells you whether your assets are worth more than your debts, and by how much. It's especially useful if you're trying to decipher the meaning of all the numbers in your account statements. Your net worth is a single number that cuts through all of the details and summarizes your financial situation.
Knowing your net worth can also help you set financial goals. Growing your net worth by a certain amount (say, 2 percent) is an achievable goal that can be accomplished either by paying off debt or by growing your savings. And since you can track net worth over time, you have a way to monitor progress.
Last but not least, it's convenient to understand your net worth before making a big financial decision, like selling a car or making an investment. You can make a more informed decision after determining how a certain financial move will affect your net worth.
How to Calculate Your Net Worth
Net worth is the value of all your assets and property minus the value of all your liabilities. The formula looks like this: Asset - Liabilities = Net Worth. Here's how you can find your net worth:
- Determine how much your assets are worth. Your assets include your house, car, and other valuable personal items, in addition to stocks, bonds, and the money in your investment and savings accounts.
- Next, find the value of your liabilities. These may include auto loans, student loans, mortgages, and credit card debt.
- Finally, subtract the value of your liabilities from the value of your assets. The result is your net worth.
Tools You Can Use
Although you can tally up your net worth yourself using a spreadsheet, it often makes more sense to use one of the many net worth tools available online. CNN Money, Kiplinger, and others offer helpful (and free) net worth calculators.
Online calculators work well for a one-time calculation, but if you're looking to monitor your net worth in the long term, it's a good idea to use a net worth tracking app that will store and update your data. Keep in mind that these services sometimes charge a fee.
Most tools to calculate net worth are pretty straightforward. But if your financial situation doesn't fit neatly into a calculator, that's okay. In that case, it's smart to talk to a financial advisor who can answer your questions and give you personalized assistance.