We all have a net worth, which is the difference between what we own and what we owe. Your net worth can be calculated by adding up your assets (what you own) and subtracting your liabilities (what you owe).
Some people think that their net worth should equal zero because they think that it means they’re out of debt. However, working towards a positive and continuously growing net worth is key to a strong financial future.
And, if you're looking for financial help or advice from professional advisors, it's best to know how much money you actually have (especially if you’re learning how to invest as a beginner and want to know what you’ve got to work with!).
In this article, we’ll go over how to calculate your net worth using easy steps that anyone can follow.
Need to increase your net worth? Learning how to invest is a great way to do so. Download the Wealth Stack app for free to get started today (we’ll even give you $5 to start investing with!).
How Do I Calculate My Net Worth?
Your net worth is an important metric to know, especially when it comes time for you to make major financial decisions like buying a home or saving for retirement. It’s pretty simple, at least at a basic level. Just follow these steps:
- Add up the value of all your assets (e.g., savings account, stocks and bonds).
- Add up the total amount of debt that you owe (e.g., mortgage balance, credit card balances).
- Subtract the money owed from the money owed in step one and step two respectively. The difference between these two numbers is your net worth!
If you’re wondering what a net worth statement looks like, it might look something like this:
Assets: $20K in savings accounts and stocks, $10K in bonds, $5K in vehicles.
Debt: $15K mortgage, $20K in student loans, and $3K in credit card debt.
Net Worth = $35,000 (Assets) - $38,000 (Debt) = $-3,000
So this net worth statement reveals that, overall, the individual is $38K in debt and therefore has a negative net worth. That’s okay! You’re not alone. In fact, nearly 200 million American households have a negative net worth.
What About Tangible Net Worth?
Depending on what you’re using your net worth for, you might want to also calculate your tangible net worth. This requires you to use the following formula:
Tangible Net Worth = Total Assets - Total Liabilities - Intangible Assets
What are tangible assets specifically? Anything that you own physically or anything that can be converted to cash. This excludes things like intellectual property rights, patents, or goodwill. It does include, however, cash, investments, and property (homes but also your personal property, such as furniture, cars, paintings, etc.).
When it comes to tangible assets vs. intangible assets, we suggest asking yourself this: can you hold or touch this asset? For example, you’re able to see and touch a boat if you’ve got one, but you can’t necessarily see or touch a copyright. Sure, you might be able to hold the paper certifying the copyright, but you can’t physically hold the concept of one.
Start With Your Liquid Assets First
Now that you know the difference between net worth and tangible net worth, along with how to calculate each one, it’s time to start the process of calculating yours. We recommend starting by calculating your most liquid assets first. This includes:
- Money in a checking or savings account
- Money market accounts
- Certificates of deposit
- Treasury bills
- Physical cash
Then, move on to calculating your investments (with Wealth Stack, this is easy, as you can see your total investments all in one place).
Remember that your investments include things that you actively invest in (such as stocks, bonds, mutual funds, etc.) as well as things that you might not even think about. This includes your life insurance cash value and all of your retirement accounts (if you have them).
Finally, calculate the estimated total value of your personal property. Don’t forget to include things such as collectibles, jewelry, expensive pieces of artwork and similar items. They are all tangible assets that you can sell easily for cash, making them a core component of your net worth.
How Can I Increase My Net Worth?
Now that you know how to calculate your net worth, it's time to start working on increasing it, especially as a millennial! To increase your net worth, we suggest that you focus on the basics. It’s (mostly) as simple as working to increase your assets while decreasing your debt.
There are several tried-and-true strategies for increasing the value of your assets:
1) Start saving early and continue to consistently save into tax-advantaged investment accounts, such as a 401k or an IRA.
2) Avoid unnecessary large monthly expenses by living within your means. This means taking a good hard look at your budget and figuring out where you can cut expenses. Some easy suggestions include cutting 90% of your subscription services and working to reduce your grocery bill by at least 10-15% each month.
3) Choose wisely when it comes to your investments by keeping in mind long-term goals, as well as short-term goals.
4) Purchase life insurance and disability insurance while you’re young and premiums aren’t that expensive.
And, we can’t forget the biggest tip: learn how to invest!
Download An App For Investing In Stocks
While you can read books on how to invest, learning the art of investing truly comes from understanding that investing is a science. The science consists of determining what the total value of a business should be based on applying a multiple to the expected revenue, profit, and free cash flow that the business will generate.
Now that you’re an expert on calculating your net worth, calculating the value of a business isn’t such a large leap, right? Plus, when you download the Wealth Stack app, this is what you gain access to. You can access numerous free video courses that will help you learn how to invest.
Then, you can browse through our list of professional Speakers to learn straight from the pros. Ready to get started? Download the app for free today.