Use this net worth calculator to show where you stand financially. Net worth is defined as...show more instructions
Should You Work With A Financial Advisor?
Do-it-yourself investing isn’t for everybody. Although you save yourself the cost of a financial advisor, you take complete responsibility for your financial future. One mistake could mean the difference between retiring in comfort and living with the anxiety that you may outlive your money.
Did you know that a 2016 study by Vanguard Research found that working with a financial advisor can increase your income in retirement by 3%? The numbers speak for themselves, but they aren’t even the most important reason to consider hiring an advisor. Investors who work with financial advisors report greater confidence, clarity, and peace of mind than do-it-yourselfers.
If you’re thinking about interviewing some prospective advisors, this new free tool will match you with highly-vetted local fiduciary investment advisors after a brief questionnaire.
How To Calculate Your Net Worth
The best way to track your financial progress is to calculate your net worth annually.
However, there are many factors to consider when figuring out your net worth.
It's important that you produce a consistent result so that you get an accurate reading.
Related: 5 Financial Planning Mistakes That Cost You Big-Time (and what to do instead!) Explained in 5 Free Video Lessons
This Net Worth Calculator removes the guesswork and provides a comprehensive list of assets and liabilities to ensure you calculate an accurate net worth every time.
Below we'll explore the net worth calculation in greater detail so that you can use it to your advantage.
A net worth statement is simply a personal balance sheet. It shows where you stand financially.
It provides a summary of your assets minus your liabilities.
In other words, your personal net worth is calculated by listing all that you own, and then subtracting all that you owe to get a net number.
The first step in calculating your net worth is to gather all the necessary financial documents, which includes your recent bank and loan statements. Once you have the required information, start the calculation by listing all of your assets with their values.
The calculator will then add together all your assets to get your total assets number. Your goal should be to continually increase those assets every year so you can reach your financial goals.
Assets you should include in the calculator include the following:
- Cash on hand and cash in bank (checking and savings)
- Mutual funds, treasury bills, cash value of life insurance, stock securities and other investments
- Market value of your real estate
- Automobiles (the resale value of your cars)
- Personal property value (resale value of jewelry, gold, furniture and other household items, etc.)
- Other assets
You should not include an inheritance that you have not received yet. A lot of things can change between now and then so only count your assets on hand – not planned assets for the future.
The next step to calculating net worth is to subtract your liabilities from the total assets calculated above.
Liabilities are defined as everything you owe. Include all debts such as your mortgage, auto loan, and credit card balances.
The net total figure remaining at the end of the calculation is your personal net worth (or personal balance sheet) and provides a snapshot in time showing how rich or poor you are today.
This figure may be small, large, or even a negative number; however, the important issue is that now you know more about your financial picture now and can take steps to improve it.
You can only improve that which you measure and track.
3 Common Mistakes To Avoid When Using A Net Worth Calculator
Whenever you calculate net worth, it's critically important to measure both assets and liabilities.
A common mistake is to forget to net out the liabilities thus showing only assets. This inflates your financial picture. Net worth is correctly calculated by subtracting liabilities from your assets to show a complete, personal balance sheet.
Another common mistake that makes your net worth calculation inaccurate is not including all relevant data. One advantage to this calculator is it prompts you for the various items that should be included so that you don't leave anything out. This increases accuracy and consistency.
Finally, if your calculation shows a negative net worth try not to get too frustrated. You're not alone.
Yes, it does mean you owe more than you own, which can be frustrating. But don't allow that frustration to keep you from completing the net worth calculation in future years and continue tracking your progress annually.
It's an important exercise to your financial progress as explained below…
Why Calculate A Net Worth Statement?
It's important to calculate net worth every year because you can only improve what you measure and track.
Using this balance sheet template and calculating net worth every year gives you a running snapshot of how your financial picture is improving over time.
Below are some of the benefits:
- Net worth gives you a clear picture of your financial well-being so you can make better informed decisions.
- Calculating your personal net worth is the best way to know exactly what your starting point is and how far you need to travel to reach your long-term financial goals.
- Growing and tracking a positive net worth not only keeps you on a positive financial course, but it can also help you qualify for loans and more attractive credit terms.
- Setting financial goals and identifying problem areas is much easier when you know what your current net worth is.
How To Increase Your Net Worth
It's simple. You increase net worth by reducing your debt and/or increasing your assets.
Dollar for dollar, reducing debt and increasing assets has an equal impact on your net worth making both equally important.
However, reducing liabilities is limited since you can only go to zero; whereas, increasing assets is unlimited. There is no upper boundary to how much you can grow the asset side of the equation.
Thus, it's valuable to pay attention to both, but focus on the asset column for maximum wealth growth. Besides, that's where all the fun is.
Determining your net worth is more than just knowing how much you have. It's also an indicator of your financial health showing if your assets are increasing over time and at what rate.
You have important financial goals to achieve such as owning your home, paying for kids college, retirement and financial independence. These goals can only be attained by growing your net worth.
If your net worth calculation is increasing every year then you are on the right track. However, if your net worth is holding steady or declining, you should start identifying the causes and think about how you can improve your financial condition.
Our wealth planning course gives you action steps you can use to increase your net worth using a variety of proven wealth building tactics.
Net Worth Calculator Terms & Definitions
- Assets – Everything you own including cash, investments, real properties, vehicles, and more that are regarded as having value and available to meet debts or other financial obligations.
- Liabilities – All your financial obligations that include long- and short-term loans, mortgages, auto loans, credit cards, and personal loans.
- Net Worth – The total assets minus total liabilities of an individual or company.
Other Personal Finance Calculators:
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Consider Professional Advice To Help Build Wealth
If you’re reading this, you belong to an exclusive group of people with the drive to become more than mere savers and retirement planners. You are -- or aspire to be -- a wealth builder.
Your mindset is half the battle. As you know, the other half is a labyrinth of investment and lifestyle decisions, risk management, tax planning, and more. Everything matters. Get something wrong, and you may watch as your goals may slip beyond the horizon.
At certain points in your wealth-building journey, you should stop to ask yourself if going it alone is the right course. Or, should you find a trusted partner to guide and advise you?
Working with a professional financial advisor can give you confidence and spot the blind spots in your wealth plan. You may choose to fly solo, but it’s also OK – and sometimes the right move – to enlist an experienced financial advisor as your co-pilot.
This free online tool can match you with highly-vetted local fiduciary financial advisors based on a very brief questionnaire.