Knowing your net worth is important for getting a sense of your financial progress and planning ahead for your larger financial goals.
There’s a good chance you’ve heard the phrase “net worth” before—probably in the news about a movie star or major CEO.
But this financial term doesn’t just apply to celebrities and millionaires; it’s relevant to everyone, including you.
Your net worth is the sum of all that you own minus what you owe—also known as your assets and liabilities.
- Assets: These are the monetary accounts and property that you own, including cash, checkings and savings accounts, stocks, bonds, real estate, and more.
- Liabilities: These refer to any debts you owe, like your current bills, student loans, and credit card balances.
Why does your net worth matter?
Your net worth, and knowing how much it is, is important because it essentially serves as a marker of your wealth. Having this figure in mind can help you plan for big financial goals like retirement and home ownership, as well as gauge your year-to-year financial progress.
Note that it’s possible for your net worth to be negative. This happens when you have more debt than assets—and though it’s not ideal, there’s no need to beat yourself up over it. A negative net worth may be common for fresh graduates and does not necessarily indicate financial incompetence.
On that note, it’s important to recognize that your net worth is not a static number. It will inevitably change over the course of your lifetime based on how you decide to spend, save, or invest your money.
So if you currently have a negative worth, know that you’re not doomed to having one forever. Be proactive and consider taking measures to alleviate debt and save more money—for instance, by adopting a minimalist budget.
How to Calculate Your Net Worth
Put simply, your net worth can be calculated by the following formula:
Assets – Liabilities = Net Worth
Of course, personal finance doesn’t tend to be easy. The difficulty of calculating your net worth generally comes from trying to determine the value of all your different assets and liabilities.
If you’re trying to figure out your net worth, here’s how to categorize your various financial accounts and personal belongings:
Assets
| Liabilities
|
Beware: when estimating the value of assets like your car, home, or jewelry, it’s better to err on the conservative side. Claiming a higher value than what these assets are actually worth will distort your net worth and make you seem wealthier than you actually are.
Resources
Since figuring out your net worth on your own isn’t necessarily a piece of cake, we’ve gathered some of the top resources to make it easier:
