What is Net Worth? The Simplest Definition
Your net worth is the total value of everything you own (your assets) minus the total amount of everything you owe (your liabilities). It's the best single number to understand your overall financial position. The formula couldn't be simpler: Assets - Liabilities = Net Worth.
Step 1: Identify and List Your Assets
Assets are anything you own that has monetary value. For your first calculation, focus on the big, easy-to-value items:
- Cash: The total in your checking and savings accounts.
- Investments: The current value of any retirement accounts (like a 401k or IRA) and brokerage accounts.
- Home Value: A reasonable estimate for your home's market value (you can use a site like Zillow for a starting point).
- Vehicle Value: The private-party value of your car (Kelley Blue Book is a great resource).
Step 2: Identify and List Your Liabilities
Liabilities are all of your outstanding debts.
- Mortgage: The remaining balance on your home loan.
- Auto Loan: The amount you still owe on your car.
- Student Loans: The total balance of all student debt.
- Credit Card Debt: The total outstanding balance on all your credit cards.
Step 3: Put It All Together - The Net Worth Equation
Now, simply plug your totals into the net worth equation.
Example Calculation:
- Total Assets: $350,000 ($15k cash + $35k investments + $280k home + $20k car)
- Total Liabilities: $250,000 ($200k mortgage + $10k car loan + $30k student loan + $10k credit cards)
- Net Worth Calculation: $350,000 - $250,000 = $100,000
Congratulations! You've just calculated your net worth. This number is your baseline. The goal now is to track it over time and take steps to make it grow. Tools like Moneko can automate this process, making it easy to see your progress every month.