Road to Success: Calculating your Net Worth


On my last post, I talked about the importance of setting your goals and as with any road maps, before you can determine how to get from here to there you need to know where “here” is. In other words, where do you stand financially? This is where the net worth statement concept comes into play.

The net worth statement is a very simple concept, it is a snapshot of your financial health. To break it down, your net worth is the difference between all the things that you own of value and all the debts you owe. In other words, it is your total assets minus your total liabilities.

So why do we need a net worth statement?

Net worth statement gives us a snapshot of your current financial condition, basically, tells us how we are doing financially at this moment in time. This is important and you need this information in order to effectively set the financial goals that you want to work towards, determine your progress along your way, and make adjustments, also why it’s important to update your net worth on a regular basis. Your net worth will also come in handy when you decide to apply for a mortgage, credit cards or any types of loans.

How to prepare your Net Worth Statement.

Not having a strong grip on your financial situation can really hurt you in times of need, like a job loss or health emergency. It’s really hard, if not impossible, to plan for your future if you don’t know where you are today. So lets start making you your Net Worth statement today.

You can begin by taking out a piece of paper and start listing all the things of value that you own. Include everything, even those you still owe money on like your house or your car, etc. You want to use their full values as of today. Don’t worry about the balance of the loans related to these assets, they will be included in the liabilities section so your equity in the assets you list will not be over looked. However, for your bonds, stock options, and retirement accounts, use your current value and not the value at maturity or the value on the date you’re fully vested. For this portion, you should talk to your broker/employer and ask for statements showing the current value of these accounts.

For life insurance policies, you should only list those that have a cash value. Majority of life insurance policies are provided through the employers and are terms policies good only for the time that you are working for that company, so these are not considered assets.

For cars and all other vehicles, use the Kelley Blue Book value, which is the estimated price of the vehicle if the car were to be sold to another consumer or a car dealer. For every other assets, use your best estimate of the fair market value.

So here is a general list of some common assets sorted by category:

Cash Equivalents: Banks and money market accounts, CDs, and Cash on hand.

Investments: Stocks, Bonds, Mutual funds, Index funds, Savings Bonds, and Stock Options.

Retirement Funds: 401(k)/Pension funds and IRAs.

Real estate: House, Land and Rental Property.

Personal Property: Vehicles, Campers and RVs, and Boats.

Household Goods: Furniture, Jewelry and Electronic Equipment.

Money Owed to you: Rents due to you, Rental Deposits, Utility Deposits.

Other Assets: Life Insurance, Privately owned business.

So now that you’ve listed everything you own that has a monetary value, in order to get a true representation of your financial net worth, we’re also going to have to list money you may owe banks or other finance companies, also known as liabilities.

Some examples of Liabilities include the following:

Loans: Mortgages, Home Equity Loans, Vehicle Loans 401(k) Loans, Student Loans.

Credit Cards: Visa/Master Card, American Express, Discover, Department Store Credit, Gas Credit Cards.

Taxes Owed: Real Estate Taxes, Unpaid income taxes, Quarterly Estimated Taxes.

Other Debts: Unpaid Bills, Alimony, Child Support, Miscellaneous.

After you have listed everything you can think of, then you have to total up all your assets and liabilities. Now subtract your liabilities from your assets and that is your Net Worth. If your number comes out to be positive(assets are greater than your liabilities) then congratulations, you have a positive net worth. If your number is negative (liabilities are greater than your assets) then you have a negative net worth. If you have negative net worth, don’t let this discourage you. At least now you know exactly where you stand and can finally map out your route to a positive net worth. Now that you have your Net Worth, our next post will concentrate on deciding what your goals are and how to get started.

(This is the second article of the three part series)


  1. The Carnival Of Personal Finance (#126) | Million Dollar Journey - pingback on November 11, 2007 at 11:42 pm
  2. Good article!

    Life insurance is an essential part of your financial health. It’s a good idea to take out a whole life insurance policy that accumulates value. Term life is a good way to cover your mortgage, etc. It’s also important that as your net worth grows, so should the amount you are insured for.

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