Do you know how much you’re worth?
Prior to working with a personal finance counselor, the only person who had ever asked me that question was my mom. Spoiler: The answer was always priceless.
In the financial world, when you’re asked how much you’re worth, it’s usually an inquiry regarding your net worth. Think of it kind of like your GPA in high school and college. It’s a number that sums up how you’re doing overall.
Your net worth tells the big picture story of your financial health by looking at the value of your assets (home value, savings balance, car value, investments, etc.) minus your liabilities (credit card debt, student loans, mortgage, etc.).
In other words, “expressed as a dollar amount, your net worth…is essentially the result of everything you have earned and spent up until now,” according to Investopedia.
How to Determine Your Net Worth
An easy way to determine your net worth is through an online calculator. We like this free net worth calculator from Investopedia. Although, you’re also welcome to calculate your net worth manually.
Either way, keep in mind that to get the most accurate net worth figure for your financial situation, it may take 30 minutes or longer to compile all of the necessary information you need.
For example, you need to list the value of all of your assets such as:
- The amount in your checking account(s)
- The amount in your savings account(s)
- The amount in your retirement account(s)
- The market value of your home(s)
- The estimated value of items in your home (jewelry, art, artifacts)
- The value of your car(s)
- Cash value of life insurance plan(s)
You’ll also need the value of all of your liabilities:
- Home loans (mortgage, home equity loan, line of credit)
- Auto loan(s) or lease value(s)
- Credit card debt(s)
- Student loans
- Other loans (personal bank loan or a 401(k) loan
If you’re using an online calculator, your net worth will be automatically calculated once you input all of the necessary information.
If you’re calculating your net worth manually, you’ll want to add up the total value of all your assets and all your liabilities separately. Now take the total assets value and subtract that from your total liabilities. That figure is your net worth.
How do I know if my net worth is good?
The average household in the U.S. has a net worth of $176,076, which is almost $50,000 higher than the average household net worth in Switzerland, the country with the second highest average household wealth in the world, according to a July 2018 report from Business Insider.
While the average U.S. household has a net worth well over $175,000, the average amount of money that a household in the U.S. earns or gains after taxes and transfers, aka money available to spend, is $44,049, according to the news report.
It’s possible to have a negative net worth. If your net worth is negative, this means you have more debts or liabilities than you do assets, or money in the bank.
Now given that our assets typically increase as we age, we wanted to highlight average net worth for different age groups in the U.S. We combed through data taken form the U.S. Census Bureau’s Survey of Income, which was released in 2017, but looked at numbers from 2013 (see table below).
As you can see, net worth increases with age, so don’t panic if your net worth is not where you want it to be quite yet. Keep a budget, watch your spending, pay off your credit cards each month and keep working toward your financial goals.
If you have a negative net worth, contact a nonprofit credit counseling agency like DebtWave Credit Counseling, Inc., to help you pay off your debts and check out our blog for tips on how to create the financial future you desire.
Why do I need to know my net worth?
“While taking the time to calculate your net worth one time is helpful, what is really beneficial is to make this calculation on a regular basis so you can see trends in your overall financial health,” according to Investopedia.
Financial experts agree calculating your net worth quarterly, or even monthly, is a better way to determine your financial health rather than simply looking at the amount in your savings account, your income or the value of your home. In fact, income isn’t even a factor in determining your net worth!
For example: Five years ago, my friends Micah and Neve purchased a home for $250,000; their investment portfolio had a market value of $100,000; and their two cars and other assets were valued at $25,000. At the time, they had an outstanding $100,000 balance on their mortgage and a $10,000 car loan.
Micah and Neve’s collective net worth five years ago was calculated as [$250,000 + $100,000 + $25,000] – [$100,000 + $10,000] = $265,000.
Now fast forward to current day. Micah and Neve’s home dropped slightly in value to $225,000; their investment portfolio increased in value to $120,000; they now have a savings account with a $20,000 balance; but their cars and other assets depreciated and are now valued at $15,000.
Micah and Neve have been able to pay $20,000 toward their mortgage, but they still owe $80,000. Luckily they were able to pay off their car loan and they do not have credit card debt or student loans so their total liabilities are $80,000.
[$225,000 + $120,000 + $20,000 + $15,000] – $80,000 = $300,000
Even though Micah and Neve’s home declined in value during the past five years, the fact that Micah and Neve continue to grow their savings and pay off their debts is reflected by their net worth increasing by $35,000 in five years.
Pretty impressive, right?
How frequently do you calculate your net worth? Tell us in the comments below!