Of course you are worth much more than any dollar amount! However, it’s helpful to know your net worth so you can be better informed before you apply for a mortgage or other loans that will require this information be submitted to a lender. It’s also helpful to know your current net worth so you can take steps to increase it.

• Net worth is the value of a person’s assets minus their liabilities.
   
• Assets are things you own with monetary value, including checking and savings account balances, the value of securities like stocks and bonds, retirement savings, real property value (the equity you have in your home, or the amount of money you would keep if you sold it now and paid off your remaining mortgage), the market value of an automobile, etc.
   
• Liabilities are obligations to pay back money (i.e., debt), including remaining balances on loans like a mortgage or car loan, credit card balances, student loans, and any owed debt on past-due bills.

Net worth is a measure of your financial health because it shows what you would have left over if you sold all of your assets to pay all of your debts. You can have a positive or negative net worth. Ideally, each financial move you make should increase your net worth (increasing assets and decreasing liabilities).

Step 1

Make a list of all of your assets and their estimated value. Remember that this includes retirement savings, current checking and savings account balances, stocks and bonds, and the estimated sales price for your home and your automobiles. Now add up those numbers and write it as your total value of assets.

Step 2

Make a list of all of your liabilities—your debts. This includes credit card balances, personal loans, student loans, and remaining balances on auto loans and your home loan. Now add up those numbers and write it as your total value of debt.

Step 3

Finally, subtract your total debt from your total assets. The resulting number is your net worth.

It’s important to put a date on this calculation so you can regularly return to it and update it. This will show you whether you are increasing or decreasing your net worth over time. Consider running this calculation at least once a quarter (every three months).

Negative net worth

Negative net worth occurs if your total debt is more than your total assets— if your credit card bills, utility bills, outstanding mortgage payments, auto loan bills, and student loans are more than the total value of your cash and investments.

Don’t panic if you calculate that you have a negative net worth! This could simply be because you are a young earner with high student loan debt and a starter income—you haven’t had the time or income to invest, yet. However, a negative net worth could mean you are overspending and overborrowing. If this is the case, creating a budget to limit spending, increase income, and pay off debt will serve you well.