What is My Net Worth?

What is My Net Worth - picture of plant growing out of stack of coins

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Newsflash: You can’t measure a person’s wealth based on how they look. To put it another way, “Just because you bought that crap doesn’t make you rich.”

New cars, swank threads, and blingin’ handbags don’t make you a baller. They make you broke. Haulin’ 6 figs doesn’t mean you’re a Rockefeller. It just gives you the opportunity to build wealth quickly. No matter what you make, what you buy, or what you drive, the only things that really matter are how much you spend, save, and invest.

Since you can’t accurately measure financial success by appearances, how do you know if somebody is actually rich? More importantly, how do you track your own financial progress? It’s called “Net Worth” yo! And, it’s about to get real.

Why Knowing Your Net Worth Is Important

Your net worth is the most important financial number you can know. It’s the one figure that provides a true measure of your current financial health. By comparing the value of everything you own to the amount of money you owe, you can clearly see whether you’re building actual wealth or digging yourself deeper into debt.

Think of your net worth like a GPS for your finances. Your current net worth depicts exactly where you stand at this very moment. But, more importantly, tracking your net worth helps you understand where you’re going. It tracks whether your financial decisions are leading you in the right direction. Are you saving and investing enough? Are you spending too much? Knowing your net worth helps you decide.

Ideally, your net worth should grow steadily over time. By monitoring it, you’re able to gauge whether you’re getting richer, poorer, or more in debt..ier.

How to Determine Your Net Worth

Calculating your net worth is actually pretty simple. Just take the value of everything you own (assets) and subtract the total amount of debt that you owe (liabilities). The resulting number is your net worth. Here’s the equation:

Assets – Liabilities = Net Worth

Boom! Piece of cake, right? Well…not so fast.

What’s an Asset?

Determining your liabilities is easy. In almost all cases, your liabilities are equal to the amount of debt you owe. Do you owe $1,500 in credit card debt? That’s a liability. Still have 5 grand to pay on your car? Yep, that’s a liability.  Student loans killing your budget? Liability.

See also: Should I Refinance My Student Loans?

Calculating the value of your assets can get a little trickier. Basically, anything you own that has value can be considered an asset. Determining the value of cash is no sweat. Just look at your bank balance and you’re good to go! But things get a little more complex when you own assets whose values change over time.

For instance, if you own your home, it’s an asset. However, home values go up and down, so the amount you paid for the house may no longer be considered its true market value. Before you can calculate your net worth, you need to determine a fair market price for the house.

Any investments you own are also considered an asset. Obviously, the value of stock market investments are constantly changing. Thus, your true net worth is bouncing up and down along with these market fluctuations. Don’t panic. What you want is to see your net worth growing gradually over a long period of time. Short-term fluctuations due to investment gains and losses isn’t a big deal. Major fluctuations due to accruing new debt is.

See also: 4 Debt-Destroying Strategies to Start Using Today

Err on the Conservative

Personally, I like to be a little conservative when calculating my net worth. Rather than including values for declining assets, like vehicles, I usually leave them out. The junkers I drive aren’t worth much anyway. However, if you have a valuable classic car collection, you’ll want to include the market values of those cars in your net worth.

Maintaining Accuracy

It’s important to remember, unless you only own cash and cash equivalents, your net worth is always going to be an estimate. Still, you want to be as accurate as possible in order to get a clear picture of your financial health.

The key to maintaining accuracy is being honest – and realistic – about your market values. It’s not doing you any good to over-inflate an assets value just to create some warm fuzzies. Remember, you’re not trying to keep up with the Joneses here. All you want is an accurate number so that you can track your financial progress.

You also need to be consistent with what you include in your calculations. If you don’t include your Beanie Baby collection in one calculation, you can’t include it in the next. You’ll throw your numbers off and won’t be able to accurately gauge your progress.

Using a Net Worth Tracker

Because my bank balances and portfolio values are constantly changing, I prefer using a net worth tracker to stay on top of my numbers. Personally, I think Personal Capital’s program is great. It monitors all of my accounts in one place, which saves me a ton of time from doing it by hand.

Personal Capital’s Free Financial Software Helps You See All of Your Wealth In One Place

Personal Capital’s free Net Worth Tracker takes about 10 minutes to get set up.  Just fill in the value of your assets (real estate, vehicles, etc.), link your investment accounts to the system, and the software does the rest. You’ll see your net worth clearly listed at the top of your dashboard, complete with a nifty graph that measures how your net worth has changed over time. To learn more about Personal Capital’s free money tools, click here to read our complete review.

Wrapping Up

Money might only be a tool to help you achieve your dreams, but obtaining the freedom you crave is almost impossible without it. Tracking your net worth is the best way to measure whether or not you’re meeting your wealth building goals.

So, how do you measure financial success? I measure it by net worth. Get started tracking yours today!

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  1. It’s always important to know where you’re at so you can finally start solving the problem. I once had a co-worker who didn’t know how many student loans they had taken out. Even if you have -$100,000 in student loans at least you know where you’re at! And yes I agree Personal Capital is pretty great. Love using it!

    1. Exactly. You can’t get started in the right direction if you don’t know where you are standing.

  2. I have a post coming out about calculating net worth, too! It’s such a necessity. We do it for all our financial planning clients and I do it for myself through Personal Capital, too!

    1. Yep, I love using Personal Capital. It makes tracking our finances super simple.

  3. I like to use a weighted balance sheet (using liquidity to set the weights for assets). That way I include things like personal property and vehicles, but discount them heavily. The balance sheet then provides a nice list I can keep with my estate papers in case anything happens to me or my husband.

  4. Great breakdown Greg. It’s such a simple calculation, though so few actually know you should do it or actually do it. When you have tools like PC available it makes it more of a no-brainer to do it.

    1. Thanks John. It really is a simple calculation, and PC makes it even easier (and more accurate). I love that software!

  5. I would say that tracking our net worth has been one of the single best financial actions we’ve taken over the past 3 years. Although market fluctuations now keep us from moving in a straight upwards line, we’ve been able to make much wiser decisions as a result of tracking it, and we’ve found that we really have a lot more options available to us than we ever thought. That is a pretty amazing feeling 🙂

    1. It feels good, right?!? And, if you’re experiencing ups and downs with your net worth due to market fluctuations, you’re definitely doing it right 😉

  6. Our net worth is definitely something we track monthly, but we also track liquid assets more. It’s fine and well to have $300,000 in equity in our house, but unless we sell the house that asset doesn’t help us. I like tracking liquid accounts, it gives me a true sense of security if everything were to go down the pooper 🙂

    1. Net worth is definitely the long-term number you should be tracking. However, cash flow is super important too. You don’t want all of your wealth tied up in non-liquid assets so that you don’t have enough to pay the bills! That’s why we always suggest keeping an emergency fund handy.

  7. This is why I love you guys… “Just because you bought that crap doesn’t make you rich.”

    I use personal capital, but I really need to stop linking up the savings account I use to save for my quarterly tax payments. It makes me very sad 4 times a year when I send in the balance to the IRS and see that sharp net worth decline.

    1. Ugh! Don’t remind me. Those quarterly tax payments are killer…

      And thanks for the kind words. We love you too 😉

  8. I agree that net worth is a way better indicator than income or possessions, since it looks at the big picture. Tracking our has helped us focus on a variety of financial goals, from debt pay-off to increasing income to investing. Thanks for this great explanation.

    1. Thanks Kalie! Net worth is a great indicator of whether or not you’re meeting your long-term goals. I love that calculation.

  9. I will be really happy when we have more of our net worth in retirement accounts instead of real estate. I love income property, but it’s not exactly liquid.

  10. Knowing your net worth is so important. So many people think they are doing well financially because they have money saved up. However, how much DEBT do you have?

  11. Tracking your net worth is a great way to gauge whether you are accumulating wealth or deteriorating wealth over time. I also calculate my liquid net worth (exclude my home and other hard assets from the calculation) to determine my retirement number.

  12. Financial Samurai says:

    Great job focusing more on affiliate income! It’s so much more sustainable and passive than freelance income. I’m proud the PF blogosphere is helping support the Bay Area too. Things could get a little rocky in the next couple of yours. Go PC!

    Given you guys report your income, what is your net worth now?



  13. Tracking my net worth over a long period of time and looking for patterns is one of the most enjoyable things I do once a month. That says a lot about me I guess. You’re right the most important thing about tracking net worth is keeping the numbers realistic and consistent.

  14. I totally agree that you can’t assume a person is financially sexy based on the amount of stuff they have because typically (and I’ve seen this first hand) the stuff comes with huge debts. Net worth is a good measure for most people, although, I hate it for some of my younger clients who have large student loan debts and have barely had the chance to save. It’s sad to think you’re worth less than nothing so for those clients, we typically focus on asset growth.

  15. We just tracked out net worth the first time a couple months ago when we decided to build a house. It was eye-opening to see what we all had as assets (and even more once the mortgage is paid off).
    As lots of others have said, PC is the easiest way to track net worth.

  16. Always need to know your net worth. It tells you how you can potentially cover expenses if you had zero income, which may not be the way many people look at it but I think it’s a sound way to view it. For example, if someone has $5k per month in expenses and $100k in net worth (assets minus liabilities), it’s going to cover 20 months. I’ve written about this viewpoint before…and it might be time to revisit the topic!

    Of course there are more aspirational reasons to track net worth as well, but this is ultimately why I think it’s important. We need to know where we are, and how close we are to reaching our goals and covering our current and future needs.

  17. Another great post! As you guys saw on my post last week, I started to use Personal Capital recently. It’s such a great tool and I’m still shocked that it’s completely free.

  18. I actually calculated our net worth a few months ago and was pleasantly surprised. At some point, I need to figure it out again, deducting the $25k in expenses that’ll be charged in the next few months, since it looks like our home value went way up.

  19. My net worth is a little depressing right now – it’s about -$90,000 (thanks to student loan debt). It’s definitely important to know though!

  20. We definitely recommend tracking your net worth regularly. We greatly discount personal possessions, autos, (ours aren’t worth much) and our primary home. We thinks this gives a more accurate picture. You don’t want to be weighted too heavily in depreciating or illiquid assets!

    1. Agreed. You don’t want to get into cash flow problems. When it comes to net worth, we shoot low on the cars and don’t include our personal belongings. I’d rather under estimate than overestimate things that just aren’t worth that much to others. We do include the house, though. I’m not trying to track cash flow with my net worth, so the house is still a major asset.

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