How To Calculate Your Net Worth

calculate net worthBy David John Marotta

With the end of the year quickly approaching, how do things look? Specifically, are you on track to meet your goals? Have you measured? What gets measured is more likely to be accomplished. Computing your net worth once a year is the first and most important step toward financial security.

Net worth is a snapshot of how much money would be left if everything you owned were converted into cash and all your debts were paid off. Your net worth is computed by creating four smaller lists.

Liquid assets: An asset is something that you own that is worth significant value. A liquid asset is something that can be sold in a matter of days. Include all of the following types of


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9 Responses to How To Calculate Your Net Worth

  1. Frugal Momma says:

    The retirement savings graph is good to have. We need to play catch up on that. We only have 1.5 at 37 and 38 ages.

  2. Minimum Wage says:

    This is ridiculous, who comes up with this stuff?

    Off the top of my head (no calculator handy), someone 50 years old, earning $15K, should have a net worth roughly $110K.

    Um, riiiiight.

    Does anyone seriously believe this?

  3. melwrc says:

    If you like to regularly track net worth, I strongly recommend Bank of America’s MyPortfolio service. It lets you link all your online financial accounts together and add offline accounts manually (e.g. home value). You then get an automatically updated net worth whenever you check out your portfolio because it will refresh balances from other accounts.
    Being able to see a daily net worth can be nerve wracking initially (especially on a bad day in the stock mkt), but the trend is really what you care about. The free service even graphs your net worth and categorizes your assets/liabilities in a pie chart.

    No, I do not work for BOA. Personally, I hate their bank and keep my free checking account minimally funded to use their bill pay and myportfolio service. Those online services along with the easy atm access makes me more tolerant of their many fee traps, which is pretty typical of banks.

  4. Teri says:

    I saw a similar (same?) article on Marotta’s website a while back and really liked this measure, a way to show that it is a non-linear function; though most calculators don’t show that.

    I also really like to add the idea of “annual spending saved.” This makes more sense. I always grappled with the income calculators because our income has fluctuated so wildly in the last decade, from college, to 2 incomes, to one income, to periods of unemployment, etc. Certainly expenses are an easier/more realistic measure. & should be affected little by income (that is my attitude. If my spouse returns to work we intend to save more; not spend more).

    Seeing this article originally actually motivated me to try to save one year’s expenses every 2 years. At 30 we’re at a 3.5 (house not included), and if we can keep up that momentum we would be on track to retire 10 years earlier. Anyway, it encouraged me to keep track of our net worth which I find to be a great overall measure of financial progress. Before I think we got stuck on how much cash we had, or how much we had in retirement. The big picture is far more important.

  5. baselle says:

    I would use the equity on a house for a net worth calculation, not the assessed value. If you got the house recently with 103% financing, you are probably underwater and your house is not an asset.

  6. Teri says:

    That’s true Baselle. However, if you have been in your home a while or have significant equity; assessed value is a REALLY good way to go. It’s what I use. I used to use the price we paid for the house, but decided assessed value takes into account slow appreciation (our assessed value rises very slowly – no more than 2% a year – whereas house is worth over double what we paid. It does no good in my net worth assessments to include the worth of such a volatile asset. It also dropped 25% in value this year; but has no play on my financial well-being. All the cash I put into the house does though and this is why I track it. Assessed value is a good compromise).

  7. Myself says:

    … The quickest path to wealth includes having a home mortgage that could be paid off, but choosing not to in order to take advantage of the tax benefits. The rich wisely leverage and invest.

    Actually, that’s only partly true. Taking advantage of the tax benefits can be important. But, by the same token, getting back 25% of the interest you pay (or whatever your tax bracket may be), is also wasteful if you weren’t diligent in putting aside at least 10% of your income.

    After all, would you willingly pay someone $100 just to get $25 back from taxes?
    Now, if the income that you have from investments offsets the interest that you’re paying on the mortgage (after the tax break … if any), then you are much better off.

    NOTE: A decent amount of Americans don’t/can’t take advantage of the tax write-off of mortgage interest.

  8. natt says:

    how do you define annual spending?

    does this include mortgage payments?
    income taxes?
    social security taxes?
    property taxes?

  9. Yodeler says:

    I realize this article is REALLY old, but the concept stinks. The more you make, the less your annual save quotient is. If my pay goes from 85K to 145K in 4 yrs, my save quotient will just be in the toilet. This math penalizes you for making more money. More complicated models analyzing spending are worth the additional effort.

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