Before you determine your net worth, let’s review what net worth is.
Net worth is basically how much money you would have left over if you sold all of your assets and paid all of your liabilities. It is the picture of your financial health.
The formula is Assets-liabilities = net worth
Why do you need to know your net worth? It is a good indicator of your financial health, both for you personally as well as for lending institutions.
Determine your net worth
There are a lot of net worth calculators available online that you can use. However, it’s a good idea to determine your net worth manually at least once so that you understand the concept of what it actually means.
It’s a pretty simple three-step process. Here we go:
1. List the value of all your assets
Make a list of all your major assets and their current value. This includes your home value, car value, balances in your savings accounts, checking accounts, retirement accounts, and any investment accounts.
Some assets, such as your home and car will need to have an estimated value listed since it fluctuates with the market. You can look up similar assets online to get an estimate. Home values can be found on realtor.com or zillow. Car estimates can be found on kelly blue book.
Once you have all assets listed, add up the values. This is your Total Assets. Write that down.
2. List the value of all your debts
List all of your debts including home loans, auto loans, student loans, personal loans, credit cards and any other debt you might have. These are your liabilities. You are responsible for paying these back.
Note the current balances for the debts. Add them up and that is your Total Liabilities. Write that down.
3. Determine your net worth
Subtract your total liabilities (debts) from your assets. That number is your Net Worth. It is what you are worth financially if you sold all of your assets.
What if my net worth is negative?
A negative net worth means that your liabilities are greater than your assets. Simply put, you have too much debt and not enough assets to offset it.
Create a plan to pay off your debt and your net worth will improve. You can add assets but if that also adds more debt (such as a mortgage) then you may not see a huge improvement in your net worth. Stick to decreasing your liabilities.
Example of a net worth sheet
Here is an example of a net worth worksheet.
The assets total $760,000 and the liabilities total $427,500.
The Net Worth is calculated as $760,000-$427,500 = $332,500. Not too shabby.
Here is a template you can use to determine your net worth. There are also many online versions available as well.
Wrapping up how to determine your net worth
It’s a good idea to determine your net worth annually. It will give you a good idea of your financial health and indicates areas that may need some improvements. It also shows any progress you’ve made with your financial goals. Add this simple tool to your money management task list to stay on top of where you are.
If you have any questions, please reach out to me. I am happy to help.
Thanks for reading!
Stay balanced,
Jill