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Your personal finances are similar to a road trip. To get where you want to go on a road trip, you need to know at least three pieces of information: where you are, where you want to go, and a map.

To achieve your financial goals, you’ll want at least three pieces of information: your net worth, your financial goals, and your budget.

In the analogy above, your net worth is the tool that tells you where you are; a snapshot in time of your finances. In addition to being a great gauge for your current financial performance, regularly reviewing your net worth can illuminate what assets and liabilities should be avoided in the future if you hope to achieve your financial goals.

To learn more about how to calculate your personal net worth and why it’s important, please read on:

What is Net Worth?

Net worth is a value derived by subtracting your liabilities from your assets. If you have a positive net worth, it means that your assets are greater than your liabilities.

Assets

An asset is something you own of value. This includes the cash you have in various bank and retirement accounts, your home(s), vehicle(s) (cars, trucks, boats, motorcycles, ATVs, etc.), collectibles, jewelry, etc.

If you’re unsure of whether or not something is an asset, consider whether or not you could sell it and earn cash for it. Typically, if you could trade it for some cash value, it should be considered an asset.

Liabilities

A liability is an outstanding debt. This includes car loans, mortgages, home equity loans, credit card debt, medical bills, personal loans, student loans, taxes due, other loans, etc.

If you’re unsure of whether or not something is a liability, consider whether you owe money. If you owe money on something or have promised to pay something, it should be included in liabilities.

How to Calculate Your Personal Net Worth

List Out Your Assets and Their Estimated Values

To start, create a column labeled ASSETS. In this column, lists out all of your assets and their estimated values. Once all of the assets and value are listed, add them all together to get your total assets.

I typically just create an excel spreadsheet to keep things simple, but pen, paper and a calculator work easy enough as well.

Some assets will be easy to list like your checking accounts, savings accounts, investing and retirement accounts. However, others like your home, vehicles, collectibles, jewelry, etc. will be a little more difficult because you’ll need to estimate their values first.

Determining Estimated Value

Home

The best way to determine estimated value is through a home appraisal. However, appraisal’s cost money and I wouldn’t recommend having one performed unless you need to have one for another reason (like refinancing or eliminating PMI).

If you don’t have a current appraisal to use, you can get a ballpark value using home websites like Realtor, Zillow, or Redfin.

Vehicles

For cars and trucks, you can use sites like Kelley Blue Book or Edmunds. For all different types of vehicles (including cars and trucks, boats, RVs, motorcycles, etc.) you can use a resource like NADA Guides.

Other

For your other assets like collectibles, antiques, jewelry, etc., you can use an online auction website like eBay and search for completed auctions for that same item. If you can’t find it, there may be online and written price guides as well as appraisal services you can use to help determine the value.

Here’s a great guide to determining the worth of your collectibles.

For the purposes of determining your net worth, I wouldn’t spend any money on determining your assets’ value unless you intend on selling it.

List Out Your Liabilities

Next, create another column labeled LIABILITIES in your spreadsheet or paper. I typically list this to the right of the ASSETS column. Next, list out all of your liabilities and their corresponding values. Again, liabilities are any debts you have outstanding.

Once all of your liabilities and their values are listed, add them all together to get your total liabilities.

Subtract Your Liabilities from Your Assets

Finally, to calculate your net worth you just subtract your total liabilities from your total assets.

A Quick Example

For example, let’s say John is 40 years old. He owns a home worth $300,000 with $250,000 left on the mortgage. A truck worth $35,000, with $32,000 left on the auto loan. He has $4,000 in credit card debt, $1,000 in checking, $2,500 in savings, $3,000 in a Roth IRA, $50,000 in a 401k, and $20,000 left in student loans.

To calculate his net worth, lets go through the steps:

Assets

Home – $300,000

Truck – $35,000

Checking – $1,000

Saving – $2,500

Roth IRA – $3,000

401k – $50,000

Total Assets = $391,500

Liabilities

Mortgage – $250,000

Truck – $32,000

Credit Cards – $4,000

Student Loans – $20,000

Total Liabilities = $306,000

Net Worth = Total Assets – Total Liabilities = $391,500 – $306,000 = $85,500

In John’s example, he has a positive net worth, which means if he was able to liquidate everything he owned of value, he would be able to pay off his liabilities and then some (+$85,500).

If You Have a Negative Net Worth

A negative net worth doesn’t necessarily mean the end of the world. Deciphering why you have a negative net worth is more important.

Did you just graduate college with student loans? Then you probably have a negative net worth because you haven’t been working long enough to balance out your student loans (and other liabilities) with assets. If you’re working, you can use your newly created income to start creating a budget, paying down debt, and accumulating assets to reverse the trend.

If you have sizeable assets, but also have sizeable liabilities it may mean that you’ve taken substantial risk. This could mean you’ve purchased a rental property or started your own company. If these assets are generating a significant income, it may be worth the risk to you. With the income you may be able to quickly pay off the debt.

You should use your list of asset and liabilities to identify ways you can improve your net worth. This could mean things like avoiding any new debts, refinancing debt, saving and investing more, selling assets that lose value quickly (RVs, Mobile Homes), etc.

How to Increase Your Net Worth

As mentioned above, monitor your net worth frequently (monthly, quarterly) and use your list of asset and liabilities to identify room for improvement.

Focus on Appreciating Assets, Sell Depreciating Assets

You’ll begin to notice trends associated with some assets. Some increase in value while others lose their value over time. If it makes sense, sell the assets that are depreciating in value.

Moving forward focus more on the assets that increase in value.

Some examples of assets that typically increase in value over time include stocks, bonds, land, houses, etc.

Some examples of assets that typically decrease in value include cars, trucks, other vehicles, furniture, motorized equipment (lawn mower, tractor, etc.), etc.

Refinance or Consolidate Debt

Regarding liabilities, you may identify opportunities for refinancing or consolidating debt in a low-interest environment that may allow you to pay down debts faster and save you down the road.

Create a Budget and Be More Mindful with Your Spending

One of the more effective ways to improve your net worth is to create a budget and be more mindful with your spending moving forward.

Now that you know certain assets and liabilities are worse than others, you can better choose how to spend your hard-earned money.

Comparing Your Net Worth

Please see below a quick table I created using the Federal Reserve’s most recent Survey of Consumer Finances issued in September 2017 (data from 2016). I included their data regarding the following categories: all families, age of head of household, education of head of household, race or ethnicity, and housing status.

For the full report, you can find it here.

I don’t typically advocate for comparing your finances to others, however it’s good to have some idea how the remainder of the US is doing and to identify trends among different categories. These trends can help you understand what the wealthy do and make more informed decisions regarding your own finances.

For instance, do home owners or renters typically have a higher net worth? In the table above, it appears that as of 2016, homeowners had a higher net worth.

However, is this due to what stage they are in life? Maybe their age? Or is it simply that homeowners end up with a higher net worth because their largest asset appreciates over time?

Regardless of how you compare to these numbers, don’t let statistics like this make you feel discouraged (lower net worth) or complacent (higher net worth).

You should have your own individual financial goals you’re striving towards. Use the progress towards your goals as your benchmark.

Conclusion

Although calculating your net worth is important, it’s not the only tool available for checking your financial health. In fact, it leaves out a key piece of the information; your income. To know how you’re truly doing each month, you also need to prepare a household budget. Between your budget and net worth, you’ll have a full picture of how your personal finances are performing and how you’re tracking towards your financial goals.

Do you routinely check your net worth?

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