How to Calculate Your Net Worth

Defining Assets and Liabilities

What is your net worth? To put it simply it is the total of your assets less your liabilities. In order to determine what your assets and liabilities are, we first need to define assets and liabilities.

Assets are items that are of real monetary value. Assets do not include items that might be of strong personal or sentimental value but have no value in the marketplace. Your house is an asset, your extended Cheech and Chong video collection most likely is not. Assets also include any financial savings or investments you have made.

Typical assets:
Savings
Mutual Funds
Bonds
401(k)
Principal residence
Other properties owned (if any)
Vehicles
Sporting Equipment
Electronics
Appliances
Jewelry

On the flip side liabilities include any debts that you owe. If you borrow money in order to purchase assets (which we typically do in buying homes and cars, as well as through the use of credit cards), the money that you owe to various lending companies are your liabilities.

Common Liabilities:
Mortgage
Loans
Lines of Credit
Credit Cards
Unpaid Bills

Calculating Your Net Worth

Now that we have a basic understanding of what assets and liabilities are, we can go about calculating our net worth. To demonstrate the process we will look at the family of John and Jane Smith, aged 35 and 32 respectively. Both have successful careers. They have one child, a daughter aged 6.

First, we must calculate their assets. The Smiths own a house that was recently appraised at $250,000. They paid $200,000 for the house 6 years ago, with a mortgage for $160,000. They currently still owe $130,000 on the mortgage.

The Smiths own two cars, a new Suburban worth $35,000 that they owe $20,000 on as well as a 10 year old Jetta that is worth $5,000 but they owe nothing for.

Totaling up the computer, home entertainment system, jewelry, refrigerator, dishwasher, and hockey equipment they have purchased you get a value of $10,000 in personal item assets.