Net Worth Explained: How to Calculate Your Net Worth

In personal finance, net worth is the calculation of your total assets minus your total liabilities. This provides lenders with a snapshot of your financial health and worthiness for mortgages and lines of credit. A net worth calculation can also help you with budgeting, identifying financial goals, purchasing life insurance, and setting aside retirement savings.

Your net worth can be quite different from the gross total of your assets. For example, a person with an expensive house and car but substantial auto loan and credit card debt may have a considerably lower net worth than it might initially appear. Even a billionaire could have a relatively low net worth if their wealth is heavily borrowed against real estate holdings. When you owe more than you have in assets, you have a negative net worth. When you have more in assets than you owe, you have a positive net worth.

Assets are items that have monetary value. Examples of assets include:

1. 1. Cash: Cash is money typically kept in bank accounts—including checking accounts, savings accounts, individual retirement accounts (IRAs), and emergency funds.
2. 2. Stocks: Stocks are shares of ownership in a company's profits and assets that can be traded at the stock market based on stock price.
3. 3. Bonds: A bond is a loan made to an organization by an investor in exchange for interest.
4. 4. Mutual funds: A mutual fund is a professionally managed investment portfolio of stocks, bonds, securities, and other assets that are collectively funded by a pool of investors.
5. 5. Annuities: Annuities are fixed amounts of money deposited regularly. Pensions fall within the category of annuities.
6. 6. Real estate: Real estate is the transactional sale or acquisition of real property, which not only includes the land itself but everything permanently attached to the land.
7. 7. Home equity: Home equity is the difference between a home’s current appraised value and the size of its mortgage.
8. 8. Physical merchandise: Various forms of physical merchandise include furniture, electronics, collectibles, and automobiles.
9. 9. Intellectual property: Intellectual property (IP) is intangible property created by human thought. This includes trademarks, copyrights, and patents.

Net worth begins with the total value of your assets, which may be thought of as your gross worth. From those assets, it subtracts various liabilities. Common liabilities include personal loans, student loans, car loans, credit card balances, home mortgages, and past-due taxes.

When such items are subtracted from your assets, they reveal a clearer picture of your financial health. For example, if you own your house outright, you may have a high net worth because the house is a great asset and you don't have the liability of a mortgage. On the flip side, if you’re paying a mortgage with a high interest rate, you have to subtract that debt from the value of the house, reducing your overall net worth.

You can calculate your personal net worth by using a simple equation:

Total value of assets – Total value of liabilities = Total net worth valuation

Note that non-cash assets must be appraised at their current market value for you to make an accurate calculation. It’s also worth considering whether you want to calculate your individual net worth or the net worth you share with a spouse or partner. If you have several inputs that complicate the equation, a financial advisor can help you quickly calculate your own net worth. Some websites offer net worth calculators that allow you to enter all of your individual assets and liabilities into a formula, but be wary of services that seek additional personal information.

All investments and investment strategies entail inherent risks and introduce the potential for financial loss or the depreciation of assets. The information presented in this article is for educational, informational, and referential purposes only. Consult a professional investment advisor before making any financial commitments.

Get the MasterClass Annual Membership for exclusive access to video lessons taught by business luminaries, including Sara Blakely, Chris Voss, Robin Roberts, Bob Iger, Howard Schultz, Anna Wintour, and more.