Do you know what you're worth? Determining your personal net worth can provide you with insight into your finances that you wouldn't otherwise have.
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Once you know how to calculate net worth, you can use that knowledge to make short-term financial plans and establish long-term goals so that you can support yourself years, and even decades, into the future.
To determine your net worth, you'll need to take inventory of everything that you own (your "assets") as well as everything that you owe (your "liabilities"). The net worth calculation is your assets net of (or minus) your liabilities.
Net Worth = Assets – Liabilities
Assets are all tangible and intangible items that you own that have value or will have value in the future. This includes:
Liabilities are any financial obligations that you owe to someone else, such as:
Some common liabilities are personal loans, such as a mortgage or car loan. But liabilities may also be outstanding bills, alimony payments, or business debts for which you are personally liable.
Here is a list of some common assets and liabilities you might need to consider when calculating your net worth:
| Personal Assets | Personal Liabilities |
| Cash held in currency | Credit card debt |
| Checking, savings, and money market accounts | Personal loans — car loan, mortgage, boat loan, etc. |
| CDs or treasury bills | Medical debt |
| Annuities, pensions, and retirement plans | Student loan debt |
| Stocks, bonds, and mutual funds | Taxes owed |
| Equity in your home | Child support payments |
| Vehicles | Alimony payments |
| Art, jewelry, antiques, or other personal assets of value | Outstanding bills — utility bills, car insurance, rent, etc. |
| Cash value of certain life insurance policies | Business debts for which you are personally liable |
| Business interests | Pledged support that is legally binding |
Knowing your net worth can help you make better financial decisions and can be useful if you need to acquire funding for a business.
On its face, the net worth calculation is straightforward, but determining these inputs may take some effort. You must determine the value of each individual asset and each liability.
Assigning a value to some assets and liabilities will be simple. The cash you own and your outstanding bills have values already assigned to them. But other assets and liabilities will require a bit more work to determine their value.
When calculating your net worth, you'll need to determine the fair market value of your assets and liabilities. The simplest way to think about fair market value is to ask yourself what your assets would be worth if you tried to sell them today, or — in the case of liabilities — how much you would have to pay to eliminate your debt.
These amounts can be determined using a few different methods:
The type of asset that is the most difficult to value is a business that you own. If you own a sole proprietorship or are in a partnership, your business interests may hold value. Here are three of the most common methods for determining the market value of a business:
Determine the value of your business by looking at the sales prices of similar businesses in your market. The market approach works best when business sales are made public. Businesses in private markets or niche markets tend not to use the market approach.
Determine the value of your business by calculating the costs it would take to replace or rebuild your business from the ground up. This method tends to be used most often in asset-heavy industries, such as real estate investment.
Base the value of your business on the values of its future cash flows. Once future cash flows are determined, they are then discounted (or reduced) to determine the value of those cash flows in today's dollars. This method is often used in businesses that are well-established, with a long financial history.
Calculating your net worth can be eye-opening. If you see that your debt balances are high, you can pay down those debts. If you see that your investments are lacking, you can plan to deposit more of your earnings into your savings or retirement accounts.
Tracking and monitoring changes to your net worth can also help you see your net worth increase over time. Not only can a positive net worth support you in retirement, but it also ensures that you have something to leave your loved ones once you're gone.
Wealth transfers are one option for sharing your assets with heirs. You can transfer a certain dollar amount of wealth to other people, either at death or during your lifetime, often without paying gift or estates taxes.
Net worth calculations can also be useful if you want to start a business or need to acquire funding for an existing business. If you approach a bank or other lender for a business loan, they may request your personal financial statement (PFS).
When you know how to calculate net worth, you can take charge of your own wealth and make even better financial decisions.
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