How are assets and liabilities connected to net worth?
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”
~Ayn Rand
The first step in creating a fitness and diet plan is to step on the scale. Nobody likes to get weighed, but you have to accept your current weight, before proceeding to change it. It’s how you keep track! The same applies to financial health. It’s tough to track your financial progress or meet your future goals without creating a net worth statement.
Your worth in monetary terms, is calculated by adding up your assets and subtracting your liabilities.
Your assets include the current worth of investments, including real estate.
While your liabilities are everything you owe: your mortgage, student loans and credit card debt.
Since I began working, I have used my net worth as a measure to determine whether I’m headed in the right direction financially, or not. After decades of saving, investing and understanding how to increase net worth, the results yield a strong wealth position.
This article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link.
Your financial net worth is calculated on a particular date. Just like your weight, your net worth will go up and down along with the prices of your assets.
We’ve partnered with Empower to provide you with access to this comprehensive net worth calculator. Just link your financial accounts to the secure portal and receive an accurate net worth calculation:
Why Calculate Your Net Worth?
Why do you need to figure out your net worth?
Why should you care about the value of what you own?
If you want control over your financial life – the opportunity to travel, send your kids to college, buy a new laptop, or retire – you must be aware of your financial footprint right now.
Would you begin a trip, check out the map app, and start driving if you didn’t know where you were?
Knowing your net worth is the same principle. Face up to your financial situation, understand how to calculate net worth and use it as a starting point to see if you are on track and able to meet your future goals. As you develop sensible money habits, your net worth will increase and you can use it to measure your financial progress.
It’s easy to figure out your net worth either with a spreadsheet or a net worth calculator. I use Quicken and Empower (formerly Personal Capital) to keep track of my net worth.
Although it takes a few minutes initially to link your accounts to an online money management platform like Quicken or Personal Capital, in the long run it is a real time saver and gives you valuable insight into your financial picture.
Step 1 to Calculate Your Net Worth
How to Calculate Total Assets
For the old school method, gather all of your financial statements: bank account(s), investment account(s), retirement account, old savings bonds stuffed in a drawer. These are called financial assets. Assets include what you own that can be converted into cash. When adding up the asset values of what you own, consider every account that includes cash or can be converted easily into cash. Ballpark the value of your home, vehicles and possessions.
Get access to a FREE Net Worth Calculator at Empower. Simply click below and link your accounts:
List of assets includes:
- Checking and savings accounts
- Retirement account values
- Online and brick and mortar bank account values
- Investment accounts including mutual funds, stocks, bonds, and exchange traded funds
- Cryptocurrency value (remember to update this regularly)
- Government bonds
- Vehicle value
- Current market value of home
- Personal property
Print out this article and complete the charts, or download a net worth excel template .
Click below if you prefer to use an online net worth calculator.
We’ve partnered with Empower to provide you with access to this comprehensive net worth calculator. Just link your financial accounts to the secure portal and receive an accurate net worth calculation:
Step 2 to Calculate Your Net Worth
How to Calculate Total Liabilities
Wouldn’t it be great if your net worth calculation was simply your total assets?
Unfortunately, most Americans have student loan debt, credit card balances, car loans or other financial liabilities.
Next, how to measure net worth includes listing the value of liabilities.
Liabilities include everything that you owe.
List of liabilities includes:
- Credit card debt
- Student loans
- Personal loans
- Home mortgage
- Car loans
Calculating liabilities requires gathering all of your statements from various lenders and credit card companies and listing the current balance on a spreadsheet. Or you can link the debt accounts with an online financial management program like Empower or Quicken.
For spreadsheet fans, follow these steps, and before you know it, you will have your worth in financial terms.
Congratulations, you’ve done the heavy lifting. Get ready for the big finish. No matter how you net worth value comes out, you know the truth and can begin the path towards money strength.
Step 3 – Calculate Your Net Worth
Net Worth = The Amount Remaining After the Value of all Liabilities is Subtracted From the Value of all Assets
Next, subtract your liabilities from your assets. The result is your net worth-today. Remember that your net worth will change along with your debt levels and the value of your investments and your home.
Now what? You have your financial net worth as of today, but what do you do with it?
Free net worth calculator and financial software (compliments of Empower)
Are you on track to meet your future financial goals? If so, congratulations. If not, you’ve taken responsibility for managing your financial assets.
Understanding Your Net Worth
Your net worth tracks your financial progress. Ultimately, to increase your net worth you’ll increase your assets like savings, investing and retirement accounts, while you reduce debt. You can also grow your net worth by paying off your mortgage and growing your income. If your home appreciates in value over time that will also boost your net worth.
Watch out for your vehicle, it usually falls in value and depreciates your net worth. That’s why you might want to buy a pre-owned vehicle instead of a new one.
The beauty of a growing net worth is that the assets you amass, free you from financial stress and can be traded for time to pursue other activities. The greater your net worth, the more financial resources you have to fund retirement, pay for your child’s education, go on a vacation, work part-time or fulfill any other monetary dreams.
What if you Have a Negative Net Worth?
What if your net worth is negative? Remember, it is just a starting point. Just like your weight or your fitness level, your net worth can change. But you must make it happen!
A negative net worth occurs when you owe more than you own. A negative net worth is a reminder that you need to adjust your financial behavior. To move the net worth needle from negative to positive, begin a debt payoff plan.
Next you’ll want to increase your income with a side hustle or second job.
Many young people run up high credit card bills and later realize that paying off the debt is possible with a few lifestyle changes.
Ben Stein and Phil DeMuth in Yes, You Can Get a Financial Life! chastise the over spenders. Their no-nonsense approach to money is right on target; you are only entitled to purchase what you can afford. They clobber the belief that you “need” the status items beyond your budget like the designer handbag that the stars’ carry and the exclusive resort vacation that you put on your credit card. You pay for those unnecessary extravagances with your future!
To keep your net worth growing, separate your needs from your wants. Fund your needs and prioritize your wants, based upon your extra cash. If you have debt, put the wants on hold until you’ve tackled your debt.
Check out your net worth every year or so and see if you are on financial track to meet your money goals.
How Your Net Worth Compares With Your Peers
The Federal Reserve created a median and average chart of Net Worth by Age Range. See how you compare. Remember that median means half of those surveyed were below the median and half were above. The average will be higher, as very wealthy individuals skew the results upwards. The 2022 data is the most current at the time this article was updated.
| Age | Average | Median |
| Younger than 35 | $183,380 | $39,040 |
| 35-44 | $548,070 | $135,300 |
| 45-54 | $971,270 | $246,700 |
| 55-64 | $1,564,070 | $364,270 |
| 65-74 | $1,780,720 | $410,000 |
| 75+ | $1,620,10 | $334,700 |
Source; FederalReserve.gov
Increase Your Net Worth Hacks
- Commit to eliminating one debt. (And then on to the next)
- Write down how much above the minimum you will pay each month to eradicate the debt.
- Find ways to save money. Spending less requires attention and strategies, like lowering housing and transportation costs. Divert the savings into investment accounts.
- Increase your auto deposit into your 401(k) and your investment account. The more you invest in IRA and 401k accounts, the greater your retirement wealth will be. Plus, when investing in a traditional IRA and 401(k) also reduces your current taxes.
- Start a side hustle to grow your income. Consider what you are good at, and find ways to monetize it like consulting, selling on Amazon, or starting an online side biz.
- Track you money with an app or by hand. That enables you to find out where you are spending and not receiving commensurate value for your dollars.
- Consider using Acorns to grow your net worth more quickly. This app allows you to automate your investing.
FAQ
At what net worth should I get a financial advisor?
At what net worth you should get a financial advisor depends upon how much help you want with your investments. Realistically, it’s not difficult to set up a simple investment portfolio and manage it on your own. Historically investing in a diversified mix of stock and bond index funds, adding to it regularly, will result in long term investment growth.
If you are a smaller investor, robo-advisors such as Wealthfront are a great way to get a professional investment portfolio (cash back if you sign up with this link) for a low management fee.
If you want to speak with someone about investing, you can always pay a “fee only” financial planner.
When you have roughly $100,000 or more, you might want to chat with a financial advisor.
If you have an account at Fidelity, Schwab or another investment brokerage, they may offer fee-free financial advice, just watch out for upselling costly financial products.
When you’re ready to consider hiring a financial advisor, Wiseravisor offers access to three financial advisors in your area, with no obligation.
What is the best way to track net worth?
We like to use the Empower net worth tracker. It’s easy to link all accounts and input any additional manual information. The Empower net worth calculator automatically updates all of your financial information. If you prefer to measure your net worth manually, it’s easy enough to add up your assets or what you own and subtract your liabilities or debts. The result will be the value of your net worth on a particular day in time.
How to calculate total assets?
When you’re attempting to learn how to measure your net worth, you’ll begin by calculating your total assets. Your assets are what you own. These will be valued on a particular day, and will vary over time.
Sum up everything you own including the amount of your bank, investment and retirement accounts. Add in the value of any CDs, savings bonds, cryptocurrency, home, car and personal property. The sum of your total assets can also be calculated using an online calculator such as Empower.
What is the net worth calculation formula?
Assets – Liabilities = Net worth
Total everything you own, including bank accounts, investment accounts, retirement accounts, vehicles and personal property. These are your assets.
Subtract everything that you own, including credit card debt, mortgage, student loans and any other debt. These are your liabilities.
Net worth is calculated by subtracting your current liabilities from your current assets. This is your financial net worth.
Related
- How Long Until I’m Wealthy?
- How Can I Tell if I’m on Track for Retirement?
- How to Cut Investing Fees and Increase Returns?
- 7 Secrets to Becoming a Millionaire
- 5 Personal Finance Habits to Help You Achieve Financial Freedom
- Go Beyond Keeping up With the Jones’ – Change Your Perception, Change Your Net Worth
Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.
Empower compensates Barbara Friedberg Personal Finance for new leads. Barbara Friedberg Personal Finance is not an investment client of Empower.
