How to Determine Your Financial Net Worth

By Eric Tyson

Your financial net worth is an important barometer of your monetary health. Your net worth indicates your capacity to accomplish major financial goals, such as buying a home, retiring, and withstanding unexpected expenses or loss of income.

Your net worth is your financial assets minus your financial liabilities:

Financial Assets – Financial Liabilities = Net Worth

Add up your financial assets

A financial asset is real money or an investment you can convert into your favorite currency that you can use to buy things now or in the future. Financial assets generally include the money you have in bank accounts, stocks, bonds, mutual funds, and exchange-traded funds. Money that you have in retirement accounts (including those with your employer) and the value of any businesses or real estate that you own are also counted.

I generally recommend that you exclude your personal residence when figuring your financial assets. Include your home only if you expect to sell it someday or otherwise live off the money you now have tied up in it (perhaps by taking out a reverse mortgage). If you plan on eventually tapping into the equity (the difference between the market value and any debt owed on the property), add that portion of the equity that you expect to use to your list of assets.

Assets can also include your future expected Social Security benefits and pension payments (if your employer has such a plan). These assets are usually quoted in dollars per month rather than as a lump sum value. In this table, I explain how to account for these monthly benefits when tallying your financial assets.

Your Financial Assets
Account Value
Savings and investment accounts (including retirement accounts):
Example: Bank savings account $5,000
________________________________ $_________
________________________________ $_________
________________________________ $_________
________________________________ $_________
________________________________ $_________
________________________________ $_________
Subtotal = $_________
Benefits earned that pay a monthly retirement income:
Employer’s pensions $_________ / month
Social Security $_________ / month
x 240*
Subtotal = $_________
Total Financial Assets (add the two subtotals) = $_________

* To convert benefits that will be paid to you monthly into a total dollar amount, and for purposes of simplification, assume that you will spend 20 years in retirement. Inflation may reduce the value of your employer’s pension if it doesn’t contain a cost-of-living increase each year in the same way that Social Security does.

Consumer items — such as your car, clothing, stereo, and so forth — do not count as financial assets. I understand that adding these things to your assets makes your assets look larger (and some financial software and publications encourage you to list these items as assets), but you can’t live off them unless you sell them.

Subtract Your Financial Liabilities

To arrive at your financial net worth, you must subtract your financial liabilities from your assets. Liabilities include loans and debts outstanding, such as student loans, credit-card and auto-loan debts. When figuring your liabilities, include money you borrowed from family and friends — unless you’re not expected to pay it back!

Include mortgage debt on your home as a liability only if you include the value of your home in your asset list. Be sure to also include debt owed on other real estate — no matter what (because you count the value of investment real estate as an asset).

Crunch Your Numbers

The preceding table provides a place for you to figure your financial assets. Go ahead and write in the spaces provided, unless you plan to lend this book to someone and don’t want to put your money situation on display.

Now comes the potentially depressing part — figuring out your debts and loans in the following table.

Your Financial Liabilities
Loan Balance
Example: Bank Credit Card $4,000
________________________________ $_________
________________________________ $_________
________________________________ $_________
________________________________ $_________
________________________________ $_________
________________________________ $_________
Total Financial Liabilities = $_________

Now you can subtract your liabilities from your assets to figure your net worth in the following table.

Your Net Worth

Find Write It Here
Total Financial Assets $_________
Total Financial Liabilities – $_________
Net Worth = $_________

Interpret your net worth results

Your net worth is important and useful only to you and your unique situation and goals. What seems like a lot of money to a person with a simple lifestyle may seem like a pittance to a person with high expectations and a desire for an opulent lifestyle.

You can crunch numbers to determine your financial status more precisely for goals such as retirement planning. In the meantime, if your net worth (excluding expected monthly retirement benefits such as those from Social Security and pensions) is negative or less than half your annual income, take notice. If you’re in your 20s and you’re just starting to work, a low net worth is less concerning and not unusual. Focus on turning this number positive over the next several years. However, if you’re in your 30s or older, consider this a wake-up call to aggressively address your financial situation.

Getting rid of your debts — the highest-interest rate ones first — is the most important thing. Then you want to build a safety reserve equal to three to six months of living expenses. Your overall plan should involve getting out of debt, reducing your spending, and developing tax-wise ways to save and invest your future earnings.