Essentially, your net worth is the value of what you own, minus what you owe. Or, as a formula:
assets – liabilities = net worth
An easy way to figure it out it is via an online calculator like the one at Bankrate.com. But you may also want to track your net worth over time to see your progress, in which case you could use an online program like Mint.com that will remember your past results or even a simple Excel spreadsheet.
To calculate it manually, you’d start by adding together all your assets. Here is a list what qualifies:
- The amount your checking and savings accounts
- The amount in your brokerage and retirement accounts
- The market value of your home
- The estimated value of the items in your home
- The value of your car
- Cash value life insurance
Next, you’d subtract your liabilities. If you aren’t sure how much you owe, get a copy of your credit report, since all your debts are listed there. Here is a list of common liabilities:
- Home loans, such as a mortgage, home equity loan or line of credit
- Auto loan or lease
- Credit cards
- Student loans
- Other loans, such as a personal bank loan or a 401(k) loan.
That will give you your net worth.
Calculating your number on an annual basis can help keep you on track. “It can act as a nudge,” says Colorado Springs, Colo. financial planner Linda Leitz. For example, seeing your net worth dipping might motivate you to focus on repaying your debts or building your savings. Seeing your net worth rise may motivate you to continue your savings pace, despite any tough sacrifices you’re making to do so.
Keep in mind, however, that net worth only offers a snapshot on a moving target: some of your assets, such as your home and stocks, will likely change in value on a regular basis no matter what you do, and those changes aren’t necessarily indicative of a need to take any action.