How and Why to Calculate Your Personal Net Worth (Includes Calculator)
Any good financial planner will tell you that the first step toward developing a long-term financial plan is calculating your personal net worth. Net worth is a better measure than your annual income or your credit score as it provides a snapshot of your current financial state; it is the difference between the assets you own and the liabilities you owe. That difference is represented by a single number that you can use to track your financial progress over time.
Calculating your net worth is like creating your own balance sheet using the equation:
Net Worth = Assets – Liabilities
Your assets are everything you own, including your house, cash savings, stocks and other business equity, bonds, insurance policies, your car, jewelry, collectibles, consumer durables, and the market value of other items. Your liabilities are everything you owe, including your mortgage, student loans, credit card debt and any debts you owe to others.
A negative net worth represents bankruptcy (at least on paper). A positive net worth means you’re doing something right. In either case, knowing your current net worth gives you a benchmark to mark your improvement.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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