Master Your Money Bootcamp: Calculate your net worth
Welcome to week three of the Master Your Money Bootcamp on demystifying your finances! This week we're looking at the big picture.
Exercise 3: Calculate your net worth
Financially speaking, everyone has a net worth. It's what you're left with after subtracting what you owe from what you own. This figure represents your current financial standing from a bird's eye view.
While a $1 million net worth is often coveted in popular culture, there's no right number. Many people's net worth increases with age, though. Ideally, you want a positive net worth that's consistently growing (if your net worth is negative, the number should be going down over time, which shows you're making progress in paying off your debts or increasing your savings/investments).
Importantly, a high income doesn't necessarily translate to a high net worth, which is why the latter is often a better benchmark for measuring wealth. As of 2019, the typical American family had a net worth of $121,700.
The goal for this week: To tally up all your assets and liabilities and calculate your net worth.
You can use an online tool like Personal Capital or Mint to link up all your accounts and automatically update your net worth and track it over time. Or you can do it manually following the steps below.
1. First you need to list out everything you own that has substantial value. While this does include some intangible assets like your investment accounts, it does not include your salary. Your income is part of your cash flow, not your net worth. Items to include:
- The cash value of any cars, motorcycles, and boats you own (Kelley Blue Book is a good resource for estimating current car value)
- The market value of your home, if you own it
- The cash value of a permanent life insurance policy
- The balance of any retirement accounts
- The balance of any taxable investment accounts
- The balance of any savings accounts
- The balance of any checking accounts
- The cash value of any expensive jewelry, fine art, furniture, or clothing
- Business interests
2. List your debts or the current balance you owe to creditors or lenders. Include the following:
- The balance of all mortgage(s)
- The balance of all student loans
- The balance of an auto loan
- The balance of a personal loan
- The balance of a business loan
- The outstanding balance on any credit cards
- Any outstanding tax liability
3. Finally, do the math.
Total assets - total liabilities = net worth
Remember that net worth is a snapshot in time. If you're regularly making debt payments or saving automatically in a retirement account, your net worth will rise over time. On the flip side, if you take out a new loan or rack up a credit card bill, your net worth may fall. Don't be discouraged.
Net worth isn't the be-all and end-all when it comes to financial health, but it's a simple and valuable tool for tracking progress toward your financial goals.
Master Your Money Bootcamp: Demystify your finances
- Exercise 1: Track down all of your accounts and passwords
- Exercise 2: Figure out how much you owe, to whom, and at what price
- Exercise 3: Calculate your net worth
- Exercise 4: Decide on a system to keep things easy from now on
- Virtual Live Event: Credit and debt
For each exercise, you'll get a detailed explanation of how to complete it and why it's important. Use the hashtags #MasterYourMoney and #MasterYourMoneyBootcamp to share your thoughts, progress, and connect with others across our Twitter, Facebook, LinkedIn, and Instagram as you make your way through each exercise, then join us for the live events.