How to Calculate Your Net Worth

by Tim Parker

How much are you worth? Not a clue? Knowing your own net worth helps you plan for your future - and your business's future. Here's how you calculate it.


Image source: Graphicstock.com

Do you know how much you’re worth? Most people don’t but as a business owner, your personal net worth may be important. Although your business is probably legally separate from your personal assets, a bank that considers giving you a business loan will likely ask for personal collateral if your business has little real value. Calculating your net worth gives you an accurate picture of how much of your personal worth you’re pledging to your business.

On a more personal level, having a clear picture of how much you’re worth helps with financial planning. Do you have enough saved for retirement; where is your debt and are there assets that could help you pay it down it down faster? What percentage of your net worth is in liquid investments and is it allocated appropriately? Your net worth is more than a single number—it’s an entire report full of important data.

Terms

Before diving into the calculations, you need to know a few terms:

Asset- Any property with real value. Real estate, a car, and jewelry or art are a few examples.

Illiquid Asset- Something that can’t be converted to cash quickly without a substantial loss. Remember the housing crisis that left people underwater on their homes? Homes became an illiquid asset for many.

Liability- Something you owe—a debt.

Liquid Asset- Something easily sold for profit. Stocks might be the best example.

Personal Property- Something you own that is movable—boats, cars, collectibles, and furniture are examples of personal property.

Real Property- Property permanently attached like a home, a barn, or detached garage.

Gather the Information

Probably the toughest part of calculating your net worth is gathering the information. Some of the information might be an estimate. Unless your real property was appraised recently, you won’t know it’s current value without paying an appraiser. In the case of your home, look up recent sales of similar homes in your neighborhood and use those as a guide for estimating your home’s worth. These are called “comps” or comparables in the real estate business.

RELATED: 14 Things to Ask a Potential Financial Advisor

If you have jewelry, some jewelry stores have appraisers on staff or they can recommend somebody. 



For assets like your car or some collectibles, look at online guides that list their value. If you haven’t dug into the value of a 401(k) from a past employer or the cash value of a life insurance policy, set up online accounts with the firms holding these investments or call and request a current statement.

If you’re going to invest time into calculating your net worth, do the legwork to compile the most accurate data. The more you estimate, the more inaccurate your final calculation will be.

The Calculation

Calculating your net worth is simple once you have the information. It’s simply your assets (what you own) minus your liabilities (what you owe). Add everything you own including:

  • Money in savings or checking accounts
  • Actual cash
  • CDs or treasury bills
  • Annuities, bonds, mutual funds, pensions and other retirement plans, stocks
  • The cash value of any life insurance policies
  • The value of real and personal property
  • Anything else that you own that has sellable value.

Next, add your liabilities

  • Loans—car, mortgage, home equity, second mortgage, boat
  • Credit card debt
  • Medical bills
  • Student loans
  • Personal loans
  • Taxes due
  • Any other debt or outstanding bills

Subtract your total liabilities from your total assets. Now you know your net worth.

RELATED: How to Get Paid What You're Worth

What’s Next?

Once you do the work the first time, the calculation is easier the next time around. If you haven’t already, use a free service like Mint.com to keep many of the numbers up to date in one place. Instead of having to compile the value of each of your investment accounts, credit cards, and everything else, you simply open Mint and copy the numbers into your spreadsheet.

In fact, Mint tracks the estimated value of many of your personal and real assets and gives you your net worth based on the information it has. It won’t be perfect but it will be pretty close.

Bottom Line

Your net worth is a very general view of your financial health. Do a quick Google search and you’ll find plenty of websites telling you what your net worth should be as you hit certain age brackets. What might be more important is to make sure you’re saving enough for retirement, paying down debt as quickly as possible, saving for your children’s’ college education, and keeping money set aside for unforeseen expenses. Net worth is an important metric but other metrics are more crucial.

© 2015 Attard Communications, Inc. All Rights Reserved. May not be reproduced, reprinted or redistributed without written permission from Attard Communications, Inc.

 
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