How to Calculate Personal Net Worth

In this tutorial we will look at how to calculate personal net worth. Net worth is calculated based on very simple formulate: it is the value of all your assets, minus the value of all your liabilities. Put another way, net worth is what is owned minus what is owed: it helps you understand how much money you will have in the hypothetical scenario, when you sell all your assets and pay off all your liabilities.

[Net worth] = [All Assets] – [All Liabilities]

Below is the example of the Net Worth calculation. In the example below Net Worth was calculated for two years: 2017 and 2018. Typically net worth is used to measure financial progress: ideally you would like to see Net Worth value going up over time, like in example below. This happens when you increase the value of your assets (i.e. save more) or decrease the value of your liabilities (i.e. pay off loans).

 

How to calculate Net Worth

Typical Assets

Liquid Assets:

In this category we capture the value of assets that can be quickly converted into cash. For example you can quickly access money on your checking account but it is might harder to access the value of your home equity, since you rely on banks to evaluate the current price of your home and issue line of credit:

  • CHECKING AND SAVINGS The current total balance of your checking and savings accounts.
  • CASH If you have any other cash, enter the total here.
  • BONDS If you own any Treasury, municipal or commercial bonds, that are not part of your retirement accounts, enter the total here.
  • SAVINGS BONDS If you own any savings bonds enter the total here.

Illiquid Assets:

  • Primary Residence: Current value of your home. This should be as close as possible to the actual market value of your home. If you have owned your home for a number of years, the current market value could be significantly higher than your original purchase price.
  • Other Real Estate: You might have vacation home or own land: Include the value of the second homes, undeveloped land, rental property or any commercial buildings you may have an interest in. As with your home, use the actual market value of this real estate.
  • Vehicles:  This is the total value of all automobiles that you own. Do not include any leased vehicles, since you do not own them and would have to return them back at the end of the lease.
  • Other Vehicles: If you own any other vehicles, such as RVs, campers or collectibles, enter them here.
  • Jewelry and Collectibles: The value of any jewelry, gems or precious metals such as gold. If you have owned these items for a number of years they may have appreciated in price, so remember to use the current market value.
  • Household items: The value of your household goods and items. This would include items such as furniture, home electronics, silverware, etc.
  • Retirement Accounts: 401K, 403B, IRA, Roth IRA etc. The current total balance of your retirement accounts. This should include IRAs, 401(k) savings, SEP IRAs, variable annuities and any other retirement savings you may have.
  • Non Retirement Accounts: Include investments on your non-retirement accounts
    • Stocks: If you own any individual stocks, that are not part of your retirement accounts, enter the total here.
    • Mutual Funds: If you own any mutual funds, that are not part of your retirement accounts, enter the total here.
  • CASH VALUE OF LIFE INSURANCE Some life insurance has a cash value. This is true for whole life and universal life policies. Term life policies, on the other hand, have no cash value. If you have life insurance with a cash value, enter the total here. Remember, this should be the cash value of the policy, not the amount paid out if you were to collect on the policy.
    OTHER If you have any other assets of value, you can enter the total here.

 

Typical Liabilities

  • Home mortgage on your primary residence: This is the current principal balance remaining on your mortgage. This is the amount that you would have to pay to own your home free and clear.
  • Home Equity Loans on your primary residence: Include the value of Home Equity Loans you have on your primary residence.
  • Other real estate mortgages or loans: This is the current principal balance for any other real estate mortgages you may have. This includes mortgages on rental property, undeveloped land, commercial property or any other real estate.
  • Car Loans: Total amount you currently have outstanding on your auto loans.
  • Student Loans: Total amount, if any, that you currently owe in college or student loans. You should enter the total outstanding even if these loans are currently in deferment.
  • Credit Cart Debt: Your total credit card debt.
  • Other Loans: Total amount, if any, of any other loans you may have.

 

What to do after calculating Net Worth

It is a good idea to calcualte Net Worth at least once a year to understand where do you stand financially. Typically net worth is used to measure financial progress: ideally you would like to see Net Worth value going up over time, like in example below. This happens when you increase the value of your assets (i.e. save more) or decrease the value of your liabilities (i.e. pay off loans). But sometimes Net Worth might be negative. In this scenario people might owe more money than they have in assets.

 

Below is the video tutorial, which focuses on calculation of Net Worth. Questions we look at in the video:

  • What is Net Worth?
  • How is Net Worth Calculated?
  • Why is this important to monitor Net Worth as a measure of financial wealth?

Download MS Excel File referenced in the video

Some additional helpful tutorials:

Smart Family Finance Video Tutorials:

Lesson 1: Smart Budgeting in Excel – Save More and Balance Income and Expenses

Monthly Budget in Excel – Download Microsoft Excel Source File Used in Above Video

Lesson 2. Why budgets don’t work – and how you can change that for you

Why Budgets Don’t work – Download Microsoft Excel Source File Referenced in Above Video

 

Lesson 3. How to improve family budget – Step back to see the big picture

  1. Budget should fit your long term goals (Important of setting goals first)
  2. Budget helps you build a set of rules to make decisions
  3. Document everything. Budget helps you see real financial picture
  4. Budgeting is collaboration with other on decision making

Family Budgets – See the Big Picture – Download the File Used in Above Video

 

 

Lesson 4. How to improve family Budget: Spending (Consumption) vs. Investment planning

  1. Family Finance and Budget. Different ways of planning
  • Spending vs. Consumption planing
  • Planning based on financial goals
  • Planning based on priorities

Definition of Investment: spending money on activities or assets to create future revenue stream

2. Example of Investments (Ongoing or Projects)

  • Get education to be eligible for higher paid jobs (Cash investment or Student Loan)
  • Learn a new skills to get promoted (No cash investment but time commitment)
  • Contribute to 401K (Before Tax Monetary Commitment)

 

Spending vs Investment – Download File used in Above Video

 

Lesson 5. Build Wealth without making a lot of Money

Questions we look at in the video:

  • Spending should not exceed Income. Track Spending and create budgets.
  • Establish Emergency Fund with Liquid Assets
  • Goal 1: Increase assets and decrease liabilities over time
    • It is OK to borrow for investment.
    • Borrowing doesn’t pay off for consumption
    • Focus on Growth of NetWorth
  • Goal 2. Convert regular Income into Portfolio Income
    • Invest 15% of income for retirement. Use Index Funds to diversify
  • Set Goals. Track Progress. Re-evaluate annually

Make sure to review below mobile friendly video on the topic:

Download MS Excel File referenced in the video

 

 

Next Steps:

  1. Checkout my easy to follow tutorial to help you improve your budgetAnnual Budget in 7 Steps
  2. Review my other Budgeting and Personal Finance Video Tutorials
  3. Subscribe to my email list to receive more tutorials like this one:

If you would like to learn more about Microsoft Excel Budgeting you can enroll into below online training courses: