How do you figure out your networth? Use this formula: net worth = total assets minus total liabilities. Assets are what you own that has value, liabilities are what you owe. The tricky part is not the subtraction, it is deciding what each item is really worth, so let me walk through a worked example and the awkward cases.
How do you figure out your networth: the formula in plain English
Think of it as a photograph of your finances on one date. You are not measuring income, which is what you earn, but wealth, which is what is left when you could theoretically sell everything and pay off everything.
A worked example with made-up numbers
Meet Dana. She is 34, rents a flat, and has some savings. Here is her sheet.
Assets
- Checking and savings: 12,000
- Retirement account: 38,000
- Brokerage account: 6,000
- Car, at resale value: 7,500
Liabilities
- Student loan: 21,000
- Car loan: 4,000
- Credit card: 1,500
Total assets are 63,500. Total liabilities are 26,500. Her net worth is 37,000. That figure is hers alone, and the numbers are invented, but the process is the same for anyone.
Valuing the difficult items
Most people find three things hard.
- Your home. Use a recent sale price of similar homes nearby, or an agent’s appraisal. Subtract selling costs if you want a conservative figure.
- Pensions. Defined-contribution plans show a balance, so use it. For a guaranteed pension, some people leave it out, others estimate a lump-sum equivalent. State which you chose so you stay consistent.
- Business ownership. A private company is the hardest to value. A cautious approach is a conservative estimate based on what a buyer might pay, or leaving it out and noting it separately.
A question people ask: should I count the car?
Yes, at what you could sell it for today, not what you paid. A car loses value quickly, so the figure drops year after year. Same with electronics and furniture, which most people ignore or record at a token amount.
Liquid versus total
When you ask how do you figure out your networth, you may mean one number. But two are helpful. Total net worth includes everything. Liquid net worth counts only what you can turn into cash soon, such as savings and investments, so it leaves out your house and retirement accounts. If you lose a job, liquid net worth tells you how long you can cope.
Make it repeatable
Pick a template and reuse it. A simple spreadsheet with a row for each item and a new column each quarter works fine. Add a total at the bottom of each section, so the formula does the sums. Over a few years, you will see patterns: whether debt is shrinking, whether investments are growing, and whether the car loan is making a dent.
Net worth can fall even when you do well
Markets drop. A house value can dip. You might use savings to buy something that is not an asset, such as a holiday, or pay for education that raises your future income but not your current balance. A lower net worth in a given quarter is not a failure. Look at the trend over several years rather than one reading.
Do not forget the bills you have not paid yet
Include things like an unpaid tax bill, a medical bill or money you owe a family member. They are liabilities even if they have no interest. A quick scan of your email and paperwork usually reveals one or two forgotten items.
Where to find reference points
For context on how typical households compare, the Federal Reserve’s Survey of Consumer Finances publishes median and mean net worth by age. Use it as background only, because personal circumstances differ widely.
Quick checklist
- Choose one date.
- List every asset and its realistic sale value.
- List every debt with its current balance.
- Subtract.
- Save the sheet and repeat in three months.
A note on honesty with yourself
The biggest error is flattering the numbers. Round down your house, round up your debts and you will usually land closer to reality. A slightly pessimistic figure keeps you from planning around money that might not be there, and you can always be pleasantly surprised later.
This article is general information, not financial advice.
Related reading: SEC Definition of High Networth Individual: What Counts.
