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Financial PlanningNet Worth CategoryLearn How To Calculate Net Worth by a Former Financial Planner

Learn How To Calculate Net Worth by a Former Financial Planner

What if you could take control of your finances and create lasting wealth by mastering one simple metric? The way to do this is to calculate your net worth. It is like your scorecard to how you are doing financially. So how do you take your financial temperature?

What is the formula to calculate net worth? Your net worth – the market value of your assets minus liabilities – holds the key.

Knowing your net worth provides total clarity on your financial standing. It also gives you a blueprint for strategic money moves to build wealth over time.

This comprehensive guide will teach you how to:

  • Your stating point: Calculate net worth step-by-step
  • Implement 4 proven strategies to grow your net worth
  • Utilize real-life examples to illustrate key concepts
  • Benchmark your net worth to aim higher
  • Apply expert tips from a retired financial planner
  • Take immediate actions to boost your net worth today

Follow this detailed playbook and you’ll gain complete understanding of where you stand financially. You’ll also have a customized roadmap to take your net worth to new heights.

Use our FREE Net Worth Calculator

It’s time to take control of your financial future and unlock the path to lasting wealth and freedom. Let’s get started!

Why Understanding Your Net Worth Matters

Your net worth is the difference between the total value of everything you own (your assets) and the total amount you owe (your liabilities).

In simple terms: Net Worth = Assets – Liabilities

Tracking your net worth over time shows you the tangible financial progress you’re making. It helps answer key questions like:

  • How much wealth have I accumulated so far?
  • Am I on track to reach my long-term financial goals?
  • Are my assets growing faster than my debts?
  • What areas of my financial life need adjustment?

Without knowing your net worth, it’s impossible to set clear financial targets or chart your wealth-building course. Quickly checking your net worth can provide that important motivation boost to keep making smart money moves.

Seeing the steady growth of your net worth over months and years is incredibly rewarding. That’s true wealth creation you can see and measure!

Net Worth Fluctuates Over Time

It’s important to note your net worth will fluctuate up and down over time.

For example, you may accumulate assets from saving and investments. But then your net worth takes a hit after closing on a mortgage or having a child.

The key is the long-term trajectory. With focused effort, your net worth will show a steady upward slope over many years. Staying focused on this big picture progress is vital.

Net Worth Formula: How to Calculate Net Worth

How To Calculate Net Worth
How To Calculate Net Worth

Calculating your net worth requires taking inventory of your assets and liabilities. Documenting this info in a net worth worksheet makes it easy.

FDIC: Calculate Net Worth

Here’s how to do it:

How To Do A Net Worth Calculation: Assets and Liabilities For a Net Worth Statement

Step 1: List Your Assets

Assets are anything of financial value that you own. This includes:
Cash assets – Checking and savings account balances, CDs, money market funds. Any cash you could access quickly.
Retirement account balances – 401k plans, IRAs, pensions. Include all of your vested account balances.
Investment account balances – Stocks, bonds, mutual funds, ETFs held in taxable brokerage accounts.
Home equity – For your primary residence, list the current estimated value minus any mortgage or home equity loan owed on it.
Real estate equity – For any rental or investment properties, calculate their estimated value minus mortgages.
Vehicle values – For cars, RVs, boats or any vehicles you own, list the private sale (not trade-in) values. Check Kelley Blue Book for estimates.
Personal property – This includes jewelry, art, antiques, collectibles or anything else of value. Use appraised values when possible.
List every asset you own no matter how small. Every dollar counts here.

Step 2: List Your Liabilities

Liabilities are debts or obligations you owe. Be sure to include:
Credit card balances – Tally up any amounts owed on all credit cards.
Personal loans – Auto loans, student loans, home equity loans, payday loans, business loans. Include anything owed.
Mortgages – Remaining mortgage balances on any properties you own.
Past-due bills – Total up any overdue utility bills, medical bills, etc if you’re paying these off over time.
Taxes owed – If you have outstanding taxes due, include these.

Step 3: Net Worth Calculation: Subtract Liabilities from Assets

Take your total assets and subtract your total liabilities to arrive at your overall net worth.
I am including a step by step example of how to calculate net worth below

Supply:

  • Asset and liability statements

Tools:

  • calculator

Materials: pen and paper

Now that you see how easy it is to calculate net worth, let’s look at an example

Total Assets: $312,500 Total Liabilities: $198,000 Net Worth: $312,500 – $198,000 = $114,500

Use a net worth tracking worksheet to lay this out clearly. Here’s an example:

Assets

  • Checking account: $5,200
  • Savings account: $15,300
  • 401k plan: $42,000
  • Roth IRA: $12,000
  • Taxable brokerage account: $22,000
  • Primary home: $200,000
  • Car 1: $8,000
  • Car 2: $12,000
  • Jewelry: $3,000

Total Assets: $312,500

Liabilities

  • Mortgage on primary home: $170,000
  • Car loan 1: $5,000
  • Car loan 2: $7,000
  • Student loans: $12,000
  • Credit card 1: $2,500
  • Credit card 2: $1,500

Total Liabilities: $198,000

Net Worth

Total Assets – Total Liabilities = Net Worth

$312,500 – $198,000 = $114,500

This example shows how a net worth worksheet makes calculating your position easy. Update this routinely to track changes.

Tools To Simplify Net Worth Tracking

Dedicating time to manually update a net worth worksheet has huge benefits. But you can simplify the process using online tools and apps.

Use Our FREE Net Worth Calculator

  • Many bank accounts offer personal financial management tools that automatically sync your asset and debt accounts to calculate net worth.
  • For example, Bank of America’s My Portfolio tool draws data from Bank of America accounts plus lets you manually enter external asset and debt balances.
  • Mint.com provides free financial tracking and reporting including net worth. It syncs with over 16,000 financial institutions to automatically pull your latest balances.

But my absolute favorite tool to track and calculate net worth is a free tool by Empower. You can use their Net Worth Calculator or you can sign up by clicking the Calculate Net Worth image below:

13439 1610392 Calculate Net WorthCalculate Net Worth

Rocket Money is another great option, click the image below:

10034 1432493 Calculate Net WorthCalculate Net Worth

These tools make net worth tracking effortless once set up. The key is routinely checking your net worth to stay updated on your financial position.

Brief Summary of What Are Assets And Liabilities?

What Are Assets

Assets are items of financial value that you own. Assets can provide income, appreciate over time, or be converted to cash. Common asset types include:

  • Cash & Ban Accounts – This includes money in checking and savings accounts, CDs, money market funds, and cash holdings.
  • Investments – Things like stocks, bonds, mutual funds, ETFs, and other securities fall into this asset category.
  • Retirement accounts – 401(k) plans, IRAs, pensions, and other retirement savings are considered assets.
  • Real estate – Any property you own, including your home and rental properties, are assets. Equity in these properties contributes to your net worth.
  • Vehicles – Cars, boats, RVs that you own are assets, based on their current value.
  • Other valuables – Jewelry, collectibles, artwork, antiques, equipment, etc. count as assets too.

What Ae Liabilities

Liabilities are debts or financial obligations that you owe. Common liability categories are:

  • Loans – Mortgages, student loans, auto loans, personal loans, business loans, and any other borrowed money.
  • Credit cards – Outstanding balances on all credit cards are considered liabilities.
  • Bills – Utility bills, medical bills, or any other unpaid expenses that you owe.
  • Taxes – If you have outstanding taxes due, these count as liabilities as well.
  • Student Loan Debt – I won’t even touch on this, since it is a soar subject for so many…

The key difference is this – assets put money in your pocket, liabilities take money out of your pocket. Maximizing assets improve your financial situation, while minimizing liabilities leads to a higher net worth.

How To Calculate Your Net worth? Real Life Examples That Illustrate Key Concepts

Understanding the theory is important. But real world examples can make money concepts like how to determine net worth really click.

Let’s look at two hypothetical scenarios that demonstrate how net worth calculations work and how net worth changes over time.

Example 1: Typical Net Worth Build Over Time, From Negative Net Worth To Positive Net Worth

Jasmine, 25 years old, calculates net worth annually to measure her financial progress. Here is how her net worth has grown:

Age 25

Assets include:

  • 401k: $12,000
  • Savings account: $2,300

Liabilities:

  • Student loans: $22,000
  • Credit card debt: $1,200

Net worth = $12,000 + $2,300 – $22,000 – $1,200 = -$8,900

Age 30

Assets:

  • 401k: $42,000
  • Roth IRA: $8,500
  • Savings account: $7,800

Liabilities:

  • Student loans: $5,000
  • Auto loan: $12,000

Total Net worth = $42,000 + $8,500 + $7,800 – $5,000 – $12,000 = $41,300

Age 35

Assets:

  • 401k: $82,000
  • Roth IRA: $29,600
  • Taxable brokerage account: $36,000
  • Primary home: $350,000
  • Car: $22,000
  • Savings account: $19,000

Liabilities:

  • Mortgage: $270,000
  • Student loans: $0

Net worth = $82,000 + $29,600 + $36,000 + $350,000 + $22,000 + $19,000 – $270,000 = $268,600

This example shows how Jasmine’s net worth grew from negative net worth to positive between age 25 to 35 through focused saving, debt reduction and asset accumulation.

Seeing this type of net worth arc in your own life is incredibly rewarding!

Example 2: How Life Events Impact Net Worth

Ryan and Sara, both 28 years old, recently figured out how to calculate net worth:

Assets:

  • Ryan 401k: $22,000
  • Sara 401k: $18,000
  • Joint savings account: $8,000

Liabilities:

  • Ryan student loans: $9,000
  • Sara student loans: $15,000
  • Car loan: $12,000

Net Worth = $22,000 + $18,000 + $8,000 – $9,000 – $15,000 – $12,000 = $12,000

One year later, Ryan and Sara decide to buy a house. They purchase a $250,000 home, putting 10% down and financing the rest. Here is their new net worth:

Assets:

  • Ryan 401k: $25,000
  • Sara 401k: $20,000
  • Joint savings account: $1,000
  • Home value: $250,000

Liabilities:

  • Mortgage: $225,000
  • Ryan student loans: $7,000
  • Sara student loans: $13,000
  • Car loan: $9,000

Net worth = $25,000 + $20,000 + $1,000 + $250,000 – $225,000 – $7,000 – $13,000 – $9,000 = $42,000

Despite saving diligently for the down payment, their net worth only increased by $30,000. This shows the impact large liabilities like a mortgage can have counterbalancing asset growth.

See how real-life scenarios like this demonstrate core net worth concepts? Look for examples like this as you follow your own net worth journey.

What is Liquid Net Worth & Why It Is Important For You?

4 Proven Ways to increase Your Net Worth & Overall Financial Health

Simply tracking your net worth is insightful, but the real goal is to build your net worth.

Implementing strategies to increase your assets while reducing your liabilities is key for net worth growth. Here are four of the most effective ways to grow your net worth over time:

1. Pay Down Toxic Debt

Not all debts are equal when it comes to net worth.

Low, fixed-rate debts like mortgages can be strategic leverage. But high-interest credit card, auto and personal loans are toxic debt – they drain cash flow while allowing little asset growth.

Make paying off and avoiding toxic debt a priority. Create a debt payoff plan targeting the highest interest rate debts first. Eliminate credit card balances in full each month.

Once toxic debt is cleared, redirect those monthly payments to build assets instead of liabilities. This is like giving yourself a raise for wealth building.

For example, paying off $10,000 in credit cards at 19% interest creates $1,900 per year in cash flow. Investing that annually could grow to over $350,000 in 30 years at a 10% return!

Use our FREE Rate of Return Calculator ROI

2. Max Out Tax-Advantaged Accounts

Accounts like 401ks, IRAs and HSAs provide major tax savings that enables faster growth through compounding.

Max out contributions to these accounts to turbocharge your net worth over time. Follow this order of priorities:

  1. Contribute enough to your 401k to get the full employer match
  2. Fully fund your annual IRA contributions
  3. Increase 401k contributions up to annual limits
  4. Utilize catch-up contributions if aged 50+
  5. Fund an HSA if enrolled in a high deductible health plan

Automate contributions to make this effortless. Even small starting amounts can grow exponentially over your lifetime.

For example, maxing out an IRA each year from age 25 to 65 could grow to over $2 million by age 65, even without any other savings. That’s the incredible power of tax-deferred compound growth and time.

3. Invest Outside of Retirement Accounts

While essential, retirement accounts have withdrawal restrictions. Building assets in taxable brokerage accounts provides flexibility to access investments anytime.

Use these accounts to create an all-weather investment portfolio including stocks, bonds and real estate. Regularly invest new funds and reinvest dividends.

Index funds like VTI and bonds like BND provide instant diversification. Adding exposure to real estate investment trusts (REITs) like VNQ provides another income stream.

Automate recurring transfers into your investment accounts for disciplined wealth building. Try services like M1 Finance that offer unlimited free automated investing.

4. Use Real Estate to Generate Income

Owning rental real estate can provide passive income through rent payments while also building equity. But it requires effort as an active landlord. Weigh the pros and cons before committing.

An easier option is investing in real estate syndications or crowdfunding platforms. New rules allow non-accredited investors to invest in private real estate deals with as little as $500.

Platforms like Fundrise and CrowdStreet provide access to institutional-quality real estate previously only available to the wealthy. This allows you to earn passive income from property cash flows and appreciation.

Adding just $500 a month to a diversified real estate portfolio earning 8% could grow to over $475,000 in 20 years!

The key is using multiple avenues – retirement accounts, taxable investing, and real estate – to build diverse assets that compound over decades.

What Net Worth Benchmarks Should You Aim For?

Knowing if your net worth is on track for your age and stage of life is great motivation.

While everyone’s path is unique, research from the Federal Reserve shows typical net worth ranges by age:

  • 20-35 years old – $5,000 to $100,000
  • 35-44 years old – $50,000 to $250,000
  • 45-54 years old – $100,000 to $500,000
  • 55-64 years old – $150,000 to $850,000
  • 65-74 years old – $160,000 to over $1 million

Aim for the higher end of these ranges. If you fall short, you’ll know areas to focus more effort.

Beyond age, a good rule of thumb is to target accumulating at least 10x your gross annual income saved by age 60. So at $100,000 in income, aim for $1 million+ in net worth.

Maintaining a net worth of at least 20x your gross income can provide long-term financial security.

Use benchmarks judiciously. Don’t worry if you fall behind but let it drive positive money behavior like saving more and controlling debts.

Tips from a Financial Planner’s Playbook

As a fee-only certified financial planner who’s helped hundreds of clients improve their net worth, I’ve seen first-hand what works.

Here are my top tips:

  • Track net worth routinely – at least quarterly. This provides regular positive reinforcement.
  • Automate saving and investing – Set up recurring transfers so contributions happen on autopilot.
  • Reduce housing costs – Keep housing below 25% of take-home pay to free up more cash.
  • Build emergency reserves – Accumulate enough cash to cover 6 months of expenses.
  • Spend cautiously on liabilities – Don’t take on excessive debts like car loans that inhibit savings.
  • Invest early and consistently – Time in the market drives compounding. Start early and keep adding to investments.
  • Diversify assets – Build a balanced portfolio across cash, stocks, bonds and real estate.
  • Review insurance needs annually – Ensure adequate life, health, disability and liability policies.
  • Consult a fee-only advisor – Get guidance from a fiduciary advisor compensated only by you.

These tips don’t require drastic lifestyle changes. Applied diligently over time, they set the stage for reaching major net worth milestones.

Here is a rewritten conclusion incorporating the provided feedback:

Take Control of Your Financial Future Today

Throughout this guide, we’ve covered the crucial steps to take charge of your finances and build lasting wealth:

  • Calculating your starting point net worth provides total clarity on your financial standing. But growing your net worth over time is the real payoff.
  • Implementing proven strategies to maximize assets while minimizing liabilities gives you a blueprint to improve your bottom line.
  • Setting clear net worth targets based on your age and income builds motivation. Comparing your net worth to standard benchmarks identifies areas for improvement.
  • Growing wealth doesn’t happen by accident. It takes consciously architecting your money moves through saving, investing, and reducing debt.

Are you feeling inspired to take control of your financial life? Here are three key actions to take right now:

  1. Calculate your current net worth so you understand your starting point.
  2. Set a 12-month net worth goal using the strategies outlined.
  3. Schedule monthly time to re-evaluate your net worth and track your progress.

Financial freedom is within reach by mastering this one simple metric. Thank you for joining me on this journey – I hope it empowers you to unlock your path to wealth creation and financial peace of mind.

To get more proven tips and strategies, be sure to sign up for my newsletter below. I look forward to helping you achieve your biggest financial goals!

Take Control of Your Financial Future Today: Map Your Path to Financial Freedom

Throughout this guide, we’ve covered the crucial steps to take charge of your finances and build lasting wealth:

  • Calculating your starting point net worth provides total clarity on your financial standing. But growing your net worth over time is the real payoff.
  • Implementing proven strategies to maximize assets while minimizing liabilities gives you a blueprint to improve your bottom line.
  • Setting clear net worth targets based on your age and income builds motivation. Comparing your net worth to standard benchmarks identifies areas for improvement.
  • Growing wealth doesn’t happen by accident. It takes consciously architecting your money moves through saving, investing, and reducing debt.

Are you feeling inspired to take control of your financial life? Here are three key actions to take right now:

  1. Calculate your current net worth so you understand your starting point.
  2. Set a 12-month net worth goal using the strategies outlined.
  3. Schedule monthly time to re-evaluate your net worth and track your progress.

Financial freedom is within reach by mastering this one simple metric. Thank you for joining me on this journey – I hope it empowers you to unlock your path to wealth creation and financial peace of mind.

To get more proven tips and strategies, be sure to sign up for my newsletter below. I look forward to helping you achieve your biggest financial goals!

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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.

Michael Ryan
Michael Ryanhttps://michaelryanmoney.com/
Who Am I? I'm Michael Ryan, a retired financial planner turned personal financial coach. And author and found of blog. My advice is backed by decades of hands-on experience in finance and recognition in esteemed publications like US News & World Report, Business Insider, and Yahoo Finance. 'here'. Find answers to your financial questions, from budgeting to investing and retirement planning, on my blog michaelryanmoney.com. My mission is to democratize financial literacy for all.
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