How to calculate Your Net Worth

Have you ever calculated the dollar amount that represents your score? Money is like points in the game of life. Obviously, life is precious and asking to put a ‘price’ on your life is rather taboo. I think this is why so few people spend the time to understand their net worth. It can be a sensitive topic to discuss.

It is quite possible that people know their net worth, but nobody wants to talk about it. Since you’re reading this on a personal finance blog, let’s assume that you want to talk about it. It’s fascinating that it’s not uncommon to spend more time picking what to watch on TV, than learning how to calculate your net worth. So stop what you’re doing, take a deep breath and let’s do this.

“Money is a scoreboard where you can rank how you’re doing against other people”

Mark Cuban

What is net worth?

Net worth is the value of all assets, minus the total of all liabilities. Simply put, net worth is what is owned minus what is owed.

Calculating your net worth

Calculating your net worth is really not that difficult. The toughest part is being honest with yourself and the state of your finances. The numbers don’t lie.

Begin by taking stock of all assets and liabilities in your life. I suggest you keep a spreadsheet with 2 columns; one for assets and one for liabilities. You can even do this on a piece of paper, it’ll make it more real. I usually stick to items that I consider valuable to other people. Items that can be sold or liquidated for cash. The value has to be measurable.

For your real estate, you can get a Zestimate or a Redfin Estimate to get a sense of your home’s value on the open market. That perfect 10 mint Michael Jordan rookie card that you have stashed away in a shoebox in the attic might actually be worth something – perhaps more than $100,000. For used car values, you can check Kelley Blue Book to get real world numbers. You might love your car, but it’s probably worth less than you think. The important part is to be honest with yourself.

*note: for the sole purpose of practicality, I am including cars and houses in the assets section since they can be sold for money. Generally, we only view assets as resources that produce income, and liabilities as items that take money out of your pocket.

Make a list of your assets

• checking accounts
• savings accounts
• investment Accounts
• cash
• precious Metals
• retirement accounts
• stocks & Bonds
• real estate – primary residence
• real estate – investment properties
• cars, boats, motorbikes, planes
• artwork, collectibles, oddball items of high value

Make a list of your liabilities

• credit card debts
• mortgages
• personal loans
• line of credits
• student loans
• car loans

Do the Math

1. Add up all of your assets
2. Add up all of your liabilities
3. Subtract your liabilities from your assets

THE RESULTING NUMBER IS YOUR NET WORTH

Increasing your net worth

Simply put, to increase your net worth you must:

• reduce your liabilities
• reduce your spending
• increase your assets
• increase your saving

Reducing liabilities

pay off your credit card debts, student loans, car loans..any loan. A very strict rule of thumb goes as follows; if you can’t buy it in cash, you can’t afford it (Real estate aside, but thats a whole other topic). Basically, if you’re still paying for it, you shouldn’t have bought it in the first place. This might not be practical, but keep an open mind to this thinking.

Reduce your spending

Keep track of your spending habits. You can use a site like Mint to automatically categorize your spending. It’s ok to spend on the things you love, as long as you save mercilessly on the things you don’t.

Increase your assets

Personally, I love real estate. It’s something that I understand. Since I have rental income coming in monthly, I consider those properties to be assets. Think about acquiring income producing assets, not just ‘stuff’ that is valuable. Remember, everything has to be measurable for the purpose of calculating your net worth.

Increase your saving

This goes hand in hand with reducing your spending. If you’re spending less, you’re saving less. You should be more proactive about it though.

When my income increased enough to really start saving (income increased, lifestyle stayed the same), I created an automatic savings plan with Capitol One 360 (but could be any bank really) that took money from my main account every Friday.

It took about 3-5 days to pull the money out from the savings account, so that stopped me from impulsively spending it. With this method, I saved enough to acquire several rental properties in both up and down markets in both the US and Canada.

Having a Negative Net Worth

This is very common. I wouldn’t freak out. Some common scenarios that would cause this:

• Younger students with loan debts
• Adult with student loan debts
• New car loan
• House purchase
• Credit card debts

I have experienced all of these. I was young, I was a student, I became an adult, I got my first car, I got my first house. It’s when you experience them all at once that it becomes an issue. 

I handled these debts by focusing on them before moving on. For example, when I had student loan debts, I wasn’t going back to school to incur more. I paid the student loans off, before buying my first car. I took public transit for years after school just to pay off my student debts. 

I only bought real estate once I had no car loans or other debts. I pay off my credit cards every Friday. I took everything in calculated stages so as to not overwhelm myself. The numbers did not lie.

Final Thoughts

You should calculate your net worth as often as possible. It’s even better to set a goal. Have a number in mind, hold yourself accountable; for eg.’I will have a net worth of $100,000 in 3 years’. Start today.

Calculate your net worth every 3 months. When you start seeing the numbers change in a positive direction, it will become a game to you and you’ll want to do it more often – once a month is a good target. There are net worth calculators (like mint.com) out there that make this really simple, you can even check it daily.

The important thing to remember is, by doing your net worth calculations manually, is to understand how you can manipulate your net worth. Become an expert at the game of your own life. As long as you have more points than you did yesterday, you are playing to win.