How to Calculate Your Net Worth

Starting your professional career can be an exciting time in your financial journey. Equipped with the knowledge to do great work in your field, it’s time to get out there and start accumulating some wealth. Of course, everyone has to start somewhere.

The early days of this part of your life make for a bit of a learning curve. There’s nothing wrong with needing a little financial help when you’re first getting started. However, the sooner you take personal responsibility for your financial situation, the easier it is to become wealthy for your age. 

Sure, it can be a bit disheartening as a young professional to face a new career if you are carrying debts. Student loans and credit cards can easily wear you down, and likewise, starting salaries aren’t always very lucrative.

As you work to grow your finances, calculating and managing your net worth is a great way to track your progress.

What is net worth?

Calculating your net worth can is the simplest, most useful, and holistic useful way to track your wealth. Knowing your wealth and what you’re worth can make it easier to decide what steps to take next on your financial journey.

You might be wondering, how exactly do I calculate my net worth?

Net worth is based on a simple equation:

Net worth = Assets minus Liabilities

It’s simple yet effective in helping to shape your financial decision-making. You’ll need to be sure to know what assets and liabilities are to accurately calculate your net worth.

What is an asset?

Assets are the first key component of calculating your net worth. Assets are anything that you have to your name that is a resource of value. Its value comes from the control you have over it to achieve some sort of monetary gain.

Popular assets that come to mind are cars and homes. If you own your car, it’s your asset. If you are still paying a car loan, it is not technically yours. We’ll get to what that would qualify as in a minute. 

Other assets include: 

• Cash or cash equivalents (savings or checking accounts)
• Possessions you could sell for money
• Fixed income investments like government bonds 
• Professional equity you may have from a job or business
• Real estate and property

Cash itself can be an asset. If you have $5,000 in your savings account, that is valuable to your overall net worth. Assets comprise both of things that have value now and things that could in the future. 

Property or goods can be assets based on their value should you choose to sell them. The item’s economic value comes from what it would yield you in cash. Some assets are known as liquid assets. 

A liquid asset is an asset that could be converted into cash quickly. This could include things like a car or property, as well as some investments like stocks and bonds depending on where they are stored. Liquidity does not play a role in your net worth, but could be important should you need money in an emergency. 

Of course, avoiding selling assets is essential to maintaining your net worth. In the case of an emergency, it’s best to tap into an emergency fund instead of your other assets. Emergency funds exist solely for these sorts of situations.

Assets are only a part of the equation. Let’s talk about liabilities. 

What is a liability?

Liabilities are, inversely, things that decrease your wealth. In many cases, liabilities are temporary. Liabilities can disappear upon repayment or when you otherwise remove them on your financial situation.

Some liabilities you might have include:

• Auto loans
• Student loans
• Home loans or mortgages
• Secured and unsecured personal loans
• Credit card debt, or balances not paid in full

Liabilities, as you can see, are any debts you may owe to someone else. Sometimes the debts are quick things that can be taken care of quickly, such as a small credit card balance that has gone unpaid. Other times, they might be with you for longer. 

For whatever reason you’ve obtained these debts, they limit your ability to grow your wealth. If you want to start investing significantly, it can be tough when there are a lot of outstanding debts that require payments. As you can see, paying these down quickly is an important way to grow your wealth. 

Restructuring debt can help you get things paid off faster. For example, refinancing your student loans can help you qualify for better interest rates (websites like Credible are great for helping you compare options!).

Liabilities can deter your net worth from growing. As a means of tracking your finances, net worth is a useful tool. Here’s why you need to care about your net worth.

Why your net worth matters

Net worth might seem like something only celebrities care about, but you should too.

As a means of tracking growth, assisting in planning, and creating realistic and manageable goals, it’s an essential measurement. Overall, it’s the easiest way to track where you need some work, and what’s going well.

Few other formulas provide the insights that calculating your net worth does. Every aspect of your financial wellness is wrapped up into this equation. Sometimes the best way to plan for the future is to get the whole picture of the present. 

Net worth takes everything about your financial situation into consideration, from income and property to debts and loans. It’s a great tool to be able to see them in relation to one another. Instead of two categories, they’re a single equation, providing you with a blueprint to what your finances look like. 

The tricky thing for you at this point might be figuring out how to gain wealth. A lot of recent grads and people on new career paths feel like they’re treading water. In reality, it’s only going to feel like this without a plan in place.

By measuring your net worth, you can get a clear idea of how to progress towards financial goals. Things like saving for an emergency fund or buying a new car (or new to you!) are possible when you know where you have room to work. For many people, it’s simply a matter of knowing how to look at the big picture.

One of the big differences between being rich vs. wealthy is shown by looking at someone’s net worth. You might not necessarily be wealthy now, but down the road it’s possible. The issue is how you spend your money.

Wealthy people acquire assets that can hold real monetary value. The rich, on the other hand, spend money on things that offer no return. Take a guess at which type of person keeps their financial footing, and who is in jeopardy. 

Make sure you don’t get in the habit of comparing yourself with others. It’s not about who makes more or if you’re more wealthy than your friends. The goal is to make personal progress, not compete against others.

At the end of the day, your financial stability matters most. Finding ways to manage wealth is important, and net worth helps a lot with this. Let’s talk about how to calculate your net worth.

How to calculate your net worth

You know the formula to net worth: Net worth = Assets – Liabilities.

It’s really that simple, and yet its uses can be insurmountable. Let’s start with how to find your net worth.

First, make a list of your assets. Be sure to list anything you can list under your name that counts. At the end of the day, it’s going to come down to valuable items and cash you have. 

Next, make a list of your liabilities. Be sure to include everything from loans to credit card debts. If you have to make a payment on it (car, house, medical bills, student loans), it’s an obligation that belongs as part of your financial equation.

Lastly, you’re going to want to subtract liabilities from your assets. In doing so, you’re left with a single number. This is your net worth. 

With this number, you can see how much money you are worth after accounting for obligations and  liabilities. In some cases, the number might feel reassuring. In other cases, you might be a little taken aback. 

Either way, the truth is always best. Let’s talk about an example situation for someone calculating their net worth to help make sure you’re doing it correctly.

Net worth example

Jennifer is recently out of college and working at a new job. She has only been out for one year, but she’s getting the hang of things. Like you, she’s curious about her net worth. 

Jennifer has $2,000 in her checking account and $1,000 in her savings. She also happens to own a paid-off car worth $4,500. Lastly, she’s renting, so she owns no property.

The summer after her graduation, Jennifer went on a celebratory cruise with her friends that resulted in $1,000 of credit card debt. She also has $4,000 in student loans to take care of. 

This leaves her with $7,500 in assets and $5,000 in liabilities. That leaves Jennifer with a net worth of $2,500. Not bad for the beginning of her financial journey!

A positive net worth is wonderful. At your stage of life, however, your net worth might not be positive yet. 

What if my net worth is negative?

Starting out with a negative net worth isn’t all that uncommon. These days, student loans and even credit card debt are considered just part of being young for many people. If you’ve already agreed to these debts, don’t beat yourself up over them.

A realistic goal might not be to move into the positive right away. Finding a plan that works for you is more important than getting into the green. Overall, any effort made to achieve positive net worth is going to put you on the right path. 

As you track your progress moving forward, doing the math yourself can get a little messy or exhausting. Thankfully, there are helpful tools you can utilize as you monitor and improve your situation.

Tools for calculating net worth

Let’s take a look at two of the most popular tools for tracking and improving your net worth.

Personal Capital

Personal Capital is a great way to get a grasp on your net worth. As a free resource, it’s a favorite of many looking to make major changes in their financial situation. Best of all, it puts everything you need in one place.

Personal Capital is a free service that puts your accounts all in one place. That’s not just bank accounts either. Everything you have to your name can be put in this service to help track how they’re all doing.

The convenience of all of these being in one place is you can insights on where you can improve. Whether you’re trying to save up an emergency fund or plan for retirement, you can actually see what steps you should be taking to make it happen. 

It’s also useful for learning essential money-saving tips. Personal Capital is a resource many choose to work with towards their net worth goals. Personal Capital to start building your total picture portfolio. 

Mint

Another useful tool as you calculate your net worth is Mint. Mint is a two-fold tool for your financial growth. On the one hand, it shows you where you can plan for the future, all the while letting you dictate choices now that will make a big difference.

Mint takes all of your money and puts it in one place. This means assets and liabilities. That saves you from logging into multiple places to find out what’s owed and what’s coming in. 

Plus, Mint makes suggestions on how to grow your wealth. These tips include detailed budgets in various scenarios. Also, you can see totals for bills owed that help makes it clear what you still have to take care of before moving into the green.

Mint is a go-to for many at your stage of financial growth. With clear numbers and easy to follow tips and tricks, the app is wonderful for building your net worth. Download the app today to start saving and budgeting for a better future!

Tips for increasing your net worth

If you’re looking to get out of a negative or hit a six-figure net worth, there are some ways to do so. Money might not grow on trees, but there are small steps you can take that will increase your wealth over time. The trick is starting right away to make sure you can reap all of the rewards.

A great place to start is getting out of debt. Student loans and credit card debt are two of the biggest culprits. After getting out of debt, you can focusing all of your income on building wealth instead of making required payments.

Another great method is cutting unnecessary expenses out of your life. This money could be adding to your net worth in a savings or retirement account instead. Be wary of things like media subscriptions and memberships that you might not really use. It’s an easy way to add more money to your net worth and cut needless spending.

Another key element of increasing net worth is to start investing. Whether it’s the stock market, property, or a business, there are correlations between those who invest and those who have a high net worth –or even generational wealth. Your net worth can translate to decades of financial growth when done right. 

Lastly, picking up a side job or freelancing can be quite lucrative. If there are side projects you feel might fit your schedule, try one out. You never know if it’ll lead to something you could do full time.

Conclusion

Whether you’re ready to take on the adult world, or simply just trying to figure out ways to increase your wealth, net worth can be a vital tool. It’s not about getting rich quickly. Nor is it about having disposable income to show off on social media and to your friends.

At the end of the day, your goal should be financial growth and stability. Stability comes before growth, so laying a firm groundwork is crucial. The base for your future needs to start on solid practices and behaviors. 

Net worth helps you keep everything in check. In a lot of ways, it’s almost like a full financial picture for you to study. See something you don’t like, and you have the ability to change that. 

With many financial tools at your disposal, it’s essential to make sure to take full advantage of everything out there. Calculating and building your net worth can be a true gift for your future. Calculate your net worth today and start finding ways to increase assets and limit your liabilities.