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How To Calculate Your Net Worth

Every U.S. adult has a net worth, from the President of the U.S. to a line cook at McDonald’s—the only difference is in the numbers.

Knowing your net worth is a key building block to running the financial side of your life. In fact, financial experts say your total net worth figure may be the single most critical money number you’ll ever have.

Why? For starters, it provides a snapshot of your finances, says Roslyn Lash, financial educator and coach at Youth Smart Financial Education Services, in Winston-Salem, N.C. “In the event that you have a major financial catastrophe such as a death, illness, or job loss, knowing this figure can help you determine if and how long you could sustain yourself,” Lash notes.

Viewing your net worth can also help to reaffirm or establish your financial goals and your budget. “Your net worth number can help you to further assess your spending and if necessary, eliminate some things from your budget,” Lash states.

Additionally, knowing your net worth will help you to determine whether or not you have debt, and how much debt you owe, says Debbi King, a motivational speaker and author of the book “The ABC’s of Personal Finance.” “If you have a negative net worth, you do have debt,” she says. “If you have a positive net worth, you are in good shape.”

“Monthly payments do not determine whether or not you are in debt—your net worth does,” she adds.

Net Worth Defined

You can’t calculate your net worth without knowing how the term is defined.

“In monetary terms it means how much you’ll have after you’ve deducted what you owe (liabilities) from what you have (assets),” says Lash. “The mathematical equation is assets minus liabilities equals net worth.

Your net worth incorporates both sides of your personal balance sheet: assets and debts, notes Ryan McPherson, founder of Intelligent Worth, in Atlanta, GA.” Financial success depends largely on your ability to grow your assets while decreasing your debts,” McPherson says. “No other number represents your progress on these two fronts like your net worth.”

Understanding the changes in your net worth over time are especially important, McPherson adds. “You want to see that you are converting your income into assets (investments and savings) and reduced debts,” he states. “This type of progress usually precedes financial success.”

“If you track one financial number, track your net worth,” he adds. “It’ll provide you with an unrivaled snapshot of your financial health.”

Calculating Your Net Worth

Figuring out your net worth is simple—your net worth is simply everything your own minus everything you owe, says McPherson.

He offers this point-by-point method for accurately calculating your net worth:

  1. Step #1: Pick a date at the end of a month—say 9/30/2017. “You’ll want your numbers to be as close to that date as possible,” says McPherson.
  2. Step #2: Gather your data. “If you owe money to any person or any company, get the most recent amount that you owe,” McPherson advises. “This applies to credit cards, student loans, mortgages, car notes, and any other type of debt. Also, look for recent statements.”
  3. Step #3: Add up all of your liabilities. “That means money you owe on things like a home mortgage or rent, auto loans, credit card debt, and other financial liabilities,” McPherson says.
  4. Step #4: Add up all your assets. “This includes all dollars that you’ve saved and/or invested—examples include retirement plans at work, checking accounts, and savings accounts,” McPherson notes. For your home value, use recent sales in your neighborhood of homes that are similar to yours. For your car, Kelley Blue Book values will work. If you own a business, use a recent appraisal or your own conservative estimate, he adds.
  5. Step #5: Subtract your liabilities away from your assets. “The remaining number (whether it’s positive or negative) is your net worth,” McPherson states. “Your net worth equals your assets minus your debts.”

You can calculate your net worth using pen and paper, Microsoft Excel, or one of many free apps. Or, go online and use one of the numerous digital net worth calculators. FinancialCalculators.com has a handy one.

“The method doesn’t matter so long as your asset and debt numbers are accurate and you track your net worth on a consistent schedule,” McPherson notes.

After You’ve Calculated Your Net Worth

Calculating your net worth once is good, McPherson says. “But calculating it on a routine basis is much better,” he says. “Find a tracking frequency that works well for you—monthly, quarterly, or semiannually are all valid. Your goal is steady progress toward a higher net worth.”

Lash advises updating your net worth calculation once a month. “That will help you see how your assets are doing (retirement accounts, home equity, etc.) and also help keep your spending in line, so that you don’t look up one day going backwards instead of forwards,” she explains.

Knowing your net worth is one of the most important personal financial moves you can make. You can use it as a measuring stick for where your stand right now, money-wise, and you can use it as a platform to build wealth going forward.

No matter how you use your net worth figure, calculate it as soon as possible, and keep on updating it. That way, you’ll have a great assessment of your financial position—now and for the rest of your life.

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