How to Calculate Your Net Worth

Net worth. It’s a highly celebrated measure of success in Hollywood, but it’s also a huge indicator of us regular folks’ financial well-being.

Many people have no idea how to calculate their net worth or even what the term “net worth” means.

Never fear, friend. I’m here for you. Let’s look at this net worth thing closer.

What is net worth?

Simply put, your net worth is an elementary school subtraction problem:

It’s the value of everything you own minus the total amount of money you owe.

How to calculate your net worth

Let’s break down our simple math problem.

Everything you own

When calculating the value of everything you own, “everything” is relative.

Most everyone agrees that this number should include things like the value of your house, other real estate, savings balances, retirement balances, and other investments.

Some people differ on whether to include cars and checking account balances. (We choose to include these in our calculations.)

Most people do not include clothing, furnishings, electronics, and smaller items like that. Don’t feel like you have to take inventory of your entire home here.

Everything you owe

Calculating the total money you owe is more straightforward.

It’s your debt. ALL of it.

There’s no good debt vs. bad debt here. (There is no “good debt” by the way. I’ve always hated that term, but I digress.)

This should include

• mortgage(s)
• student loans
• car loans
• personal loans
• 401(k) loans
• credit cards
• the financing for your new couch

Any. Money. You. Owe. Anywhere.

Your net worth

Now take the value of everything you own and subtract the total amount you owe. This, my friend, is your net worth.

It’s entirely possible that this number is negative.

That’s okay. It’s not set in stone. You have the power to increase (or decrease) it.

Why is your net worth important?

Before we get to increasing your net worth, you may be wondering why it’s even important in the first place.

Let’s be clear:

Your net worth is the most important of all your financial numbers.

More important than your salary, your credit score, and whatever other number we’re using these days as a proxy for financial success.

Did you know it’s possible to make six figures and be broke? (That would be me.)

Did you know it’s also possible to have a high credit score and be broke? (Me again.)

It’s because neither of those numbers mean anything when looking at your actual financial health.

Mr. TMG and I both make six figures and have excellent credit scores, but as of February 2019, our net worth is negative six figures.

In other words, we could sell everything we have to our names, put all that money on our debt, and still have another six figures of debt leftover.

That‘s the definition of broke. Sigh…

Ways to increase your net worth

There are two ways to increase your net worth: increase the value of your assets or decrease the amount of debt you owe (or both!).

The foundation for both of these is controlling your cash flow. That’s where your budget comes in.

When you know how much you have coming in and how much you have going out, you can redirect any extra money to your goals, whether that’s increasing your savings and investments or decreasing your debt.

As I’ve mentioned before, I highly recommend you pay off any debt before you begin saving or investing to any significant degree.

Yes, you need an emergency fund, but above that, I’d be putting as much money as you can toward your debt to pay it off.

We’re working toward a positive net worth by paying off our debt. Check out our progress here!

How to track your net worth

Now that you know what your net worth is, why it’s important, and how to calculate and increase it, my final tip is to track it to make sure it’s moving in the right direction.

Because your net worth is the greatest indicator of your financial health, you want to be sure that it’s increasing. The only way to do that is to track it over time.

For the last 2 years and some change, Mr. TMG and I have calculated our net worth around the same time each month. We keep a record of it so that we can look back and see our progress.

You can get a copy of the exact spreadsheet we use to track our net worth below so you can start calculating your own.

Final words

Let’s stop monitoring irrelevant financial numbers.

No one cares that you have a 750+ credit score when you have no money. No one cares that you make six figures when you have nothing to show for it.

Stop ignoring your most important financial number. It’s not only for celebrities.

Do you track your net worth? Were you surprised (like we were) at your net worth?