Net worth isn’t just a seven-figure number representing a celebrity’s wealth, or an even larger number measuring a company’s balance sheet. Everyone has a net worth, and calculating yours can be a step toward assessing your financial health.
What you own minus what you owe
The formal definition of net worth is the combined value of your assets, or the things you own that have monetary value, minus the value of your liabilities — the accounts or loans that you’re paying off.
Assets that count toward your net worth tend to be liquid assets: the money in your checking and savings accounts, your retirement accounts, life insurance and any other investments you’ve made. Some fixed assets can count too, but it depends on whether or not you can or would sell them if you needed to.
“Lots of things are not very marketable,” says Autumn Kruse, a certified financial planner in California. Some possessions, like your clothes, your TV or your phone, don’t have much resale value. Cars, while they have value, depreciate the longer you own them. There are some things that may be financially valuable that you never plan to sell, such as family heirlooms. And you may not want to include your family home as an asset, depending on whether or not you’re using it for a home equity line of credit or are planning to sell it. Secondary properties like vacation homes, however, could be considered in your net worth, since you and your family don’t have to move out of these properties in order to sell them.
A more helpful way to look at it, says Kruse, is to ask yourself, “What could you liquidate and invest in something else if you wanted to?”
Liabilities are a bit easier to classify — any money you owe to another person or entity falls under this category. Your student loans, auto loans, personal loans or consumer debt would be considered a liability, as well as any toxic forms of debt like payday or title loans. You can include your mortgage, but only if you’re including home value among your assets.
Why find your net worth?
“It’s nice to know as part of a regular check-up,” says Kruse. And if you’ve never calculated your net worth before, the exercise may be more useful than the number it generates. It may be the first time you see all of your assets and liabilities in one place.
If your net worth surprises you, keep in mind that this is just a jumping-off point for enhancing the numbers you like and changing the ones you don’t.
How to calculate it
This calculator will subtract the value of the assets you enter from the value of your liabilities.
What to do next
If your net worth isn’t as high as you like, don’t be discouraged. It’s just one number in a larger picture of your financial health.