Expanded Lesson
4 min read
Net Worth Calculation Made Easy
-
-
Copied link to Clipboard!
Your net worth all comes down to assets and debts. Everyone owns a few assets and you may have a few debts or liabilities as well. Calculating your net worth shows you how much you’re worth in terms of dollars and cents. It’s how much you own or have minus everything you still owe. Use this simple guide to learn how to calculate your net worth.
Lesson Notes:
- Your net worth can be an indicator of your financial health. Ideally, your net worth should grow over time as you save more and pay down debts.
- Your net worth can be calculated by subtracting all of your debts and liabilities from your assets.
- You may have items that are intangible or difficult to sell that may be excluded from calculations used by financial institutions to determine loan eligibility.
LESSON CONTENTS
What Does It Mean to Calculate Your Net Worth?
You can calculate their net worth by adding up all your assets while subtracting their outstanding liabilities from the total. Regardless of where you are in life, you may be curious to learn how much you’re worth — at least on paper.
There are several good reasons to calculate your net worth. A financial institution may ask for your net worth when evaluating your application for a home, business or auto loan. Calculating your net worth gives the bank or credit union an idea of how much you’re worth if you default on the loan.
You may need to calculate your net worth when signing a prenuptial agreement, meeting with an accountant or financial planner or paying your taxes. Many businesses regularly generate net worth statements to send to investors and regulators.
Your net worth can also be an indicator of financial health. Most people tend to grow their net worth as they pay down debt, save more and receive salary increases. You may want to keep tabs on your net worth as you start saving for retirement as well.
Simple Net Worth Calculation
A simple net worth calculation means adding up your total assets and subtracting your debts, often referred to as liabilities.
Assets include everything you own, including how much money you have in your checking or savings account, real estate equity, savings and investment plans and items with a clear market value (car, jewelry, clothes, art, etc.).
Liabilities include all outstanding debts, including the remaining balance on your home, car, business or personal loan, credit card debt, student loans, back taxes and anything else you still owe.
To calculate your net worth, use the following equation:
ASSETS – LIABILITIES (DEBTS) = TOTAL NET WORTH
With Ent's Money Insight, users have the ability to track all their accounts in one place to visualize their current net worth and watch it adjust over time.
Tangible Net Worth Calculation
Your tangible net worth is something different. Some people own what is known as “intangible possessions,” or items that would be difficult to sell. Most possessions are tangible, which means they are physical and capable of being held. They also have a clear market value.
Intangible possessions are items that don’t exist in physical forms, such as intellectual property (IP), trademarks, websites, certain businesses and patents. These items have value but selling them requires a certain amount of expertise.
If you own intangible possessions, you may need to calculate your tangible net worth, which means removing these possessions from your total net worth.
Your tangible net worth will always be lower than your simple net worth. So why would you subtract these kinds of possessions?
Financial institutions often ask for tangible net worth instead of simple net worth to get a better idea of how much they can expect to recoup by selling your assets should you default on a loan. They may have trouble selling your IP, trademarks and other intangible assets. Some of these items may take months to sell on the market, assuming there’s a buyer. Calculating their true value may also be up for debate.
To keep things simple, credit unions and banks often rely on tangible net worth when evaluating loan applicants. Cars, homes, jewelry, and other items are easy to sell with clear values, making them a tangible part of your net worth.
If you are looking to calculate your tangible net worth, use the following equation:
ASSETS – LIABILITIES (DEBTS) – (INTANGIBLE ASSETS) = TOTAL TANGIBLE NET WORTH
Increasing Your Net Worth
Once you’ve calculated your net worth, you should have a good idea of where you stand financially. The goal is to have a positive net worth, meaning your assets are worth more than your debts. However, if you owe more than you own, you will have a negative net worth.
Don’t be discouraged if your net worth is in the red or not as high as you’d like it to be. Creating a budget can help you save more every month, so you can get out of debt, build wealth and start investing.
Related Resources
View All
5 min read
Buy Now Pay Later (BNPL) Services
If you buy something online or on your mobile device, you might see the option to “buy now and pay later.” This feature allows you to buy the item right away without paying the full price upfront. These services may help break up larger payments into smaller, more affordable ones, but can also encourage excessive spending. Learn more about buy now pay later services and how they can affect your finances.
4 min read
Ways to Give Back to Your Community This Thanksgiving
Thanksgiving is more than getting together with your friends and family for a delicious feast; it’s about giving thanks and being grateful for what you have. Regardless of how or where you plan on celebrating in Colorado, there are many people in our communities that could use a hand this time of year. A little bit of effort goes a long way. Learn how you and your guests can give back to your community on this special day.
4 min read
Is One Checking Account Enough?
There are so many reasons to have more than one bank account. Most of us use money in different ways, so it may make sense to open additional accounts. The situation can become more complicated if you are married or more than one person uses your account. Use this guide to help you open the right number of bank accounts.
6 min read
Easy Ways to Save Money
Saving money doesn’t have to be a chore. There are a variety of tools and shortcuts at your disposal that can help you track your spending and cut back on regular purchases to help you save more. From entertainment to transportation and online shopping, learn about the best ways to save money.
6 min read
Preparing for a Possible Recession
A recession represents a decline in economic activity and often leads to high unemployment. Recessions are a natural part of the business cycle, but they can also have a detrimental effect on your finances. Recessions come and go, but they are historically difficult to predict. Learn how to prepare for a possible recession by adjusting your personal finances accordingly.
6 min read
How much money makes you “wealthy” in Colorado?
Have you ever wondered how much money it would take for you to be considered rich or wealthy? While people may have different definitions of wealth, it is commonly thought of as having great material resources or assets. Read this article to learn what is considered wealthy and what experts recommend to help you build your wealth.
6 min read
Adjusting Your Budget With Rising Gas Prices
Many of us need gas to get where we need to go, and high gas prices can have a devastating impact on your personal finances depending on how often you need to refuel. Even if you don’t have a car, you’re bound to feel the effects of inflation as rising gas prices affect supply chains. Learn how rising fuel prices can affect your budget and how to adjust your expenses accordingly.
6 min read
Great Resignation: Money Tips When Transitioning Your Job
With a record number of job openings all over the country, it’s a great time to look for a new job. But transitioning careers can leave you without income for several months or more, depending on how long you are out of work. If you are thinking of changing jobs, learn how to manage your finances during this period of transition.
6 min read
How to Vacation on a Budget
There’s nothing better than leaving town with your loved ones as you explore a new city or country. But going on vacation is more expensive than it used to be. The cost of travel, housing and meals out can put a major dent in your finances. You don’t want to get to your destination and suddenly realize you don’t have enough money to enjoy your trip. This is your time to relax. You shouldn’t have to worry about every dollar you spend. Learn how to budget for your upcoming trip, so you can make the most of your time away from work.
5 min read
How to Stop Living Paycheck to Paycheck: 7 Ways to Break the Cycle
Living paycheck to paycheck isn’t easy. It means using up all your paycheck until the next one arrives. This leaves little to no room for surprise expenses, such as accidents, medical emergencies and other surprise fees that can put your bank account in the red. It also makes it harder to save for long-term goals, such as retirement, buying your first house or paying off your credit card or student loan debt. Use these personal finance tips to break out of the cycle so you can start saving more money each month.
6 min read
Managing Your Finances During Inflation
Inflation can have a serious effect on your finances. When prices start to rise, consumers lose their purchasing power, which means your money won’t go as far as it used to. You may not be able to control inflation, but you can change the way you manage your finances during these uncertain times. Learn more about the effects of inflation and the impact it can have on your savings and income.
4 min read
What To Do With Your Tax Refund
Getting a check in the mail or automatic deposit from the federal government after you submit your tax return is a great opportunity to whip your finances into shape. Don’t let that money burn a hole in your pocket. Use these tips to make the most of your tax refund.