How to Calculate Your Net Worth

Figuring out your net worth is an important step in creating a sensible financial plan. Once you've calculated your net worth, you can see in black and white how you've done in preserving your wealth and fending off expenses. If your net worth is negative, you might have to consider some lifestyle changes to get back on the positive side of the ledger.

Components of Net Worth

The net worth formula is straightforward: take your assets and subtract your liabilities. However, calculating your assets and liabilities -- and knowing what to include -- are the most difficult parts of the equation.

Start by listing all of your obvious assets, such as the value of your checking, savings and investment accounts, including your IRAs and company retirement plans such as 401(k) plans. Include the cash value of any life insurance you own -- not the amount that you'll receive as a payout, but the current cash value only. Add your household furnishings and items of value, including furniture, appliances, jewelry, automobiles, cars, artwork and other collectibles. List the value of any homes you own as well, even if you're still paying a mortgage on them.

On the liability side of the ledger, you'll have to subtract any money you owe. This includes credit card debt, home mortgages, 401(k) or retirement plan loans, and personal, student and auto loans.

The Net Worth Calculation

Net worth equals assets minus liabilities. Once you've assembled your list of assets and liabilities, total them up and subtract your liabilities from your assets. The result is your current net worth.

As an example, let's look at the net worth of a fictional Dr. Walters. Here's a list of his current assets:

  • stocks and stock funds: $54,000
  • bonds and bond fund: $72,000
  • cash, including savings accounts: $22,000
  • retirement accounts: $157,000
  • value of home: $324,000
  • art, collectibles, jewelry and furnishings: $31,000
  • automobiles: $28,000
  • miscellaneous: $4,200

Total assets: $692,200

Here are Dr. Walter's current liabilities:

  • home mortgage: $279,000
  • auto loans: $13,500
  • 401(k) loan: $22,000
  • med school student loan: $114,000
  • credit card debt: $18,000

Total liabilities: $446,500

Dr. Walter's net worth is $692,200 less $446,500, or $245,700. This number will fluctuate on a daily and even minute-by-minute basis as the value of Dr. Walter's investments change, and as liabilities are paid down.