Know How To Calculate Your Net Worth

You've got to know how to calculate your net worth if you want to make your financial plans count.

Counting your money means coming up with a  balance sheet or net worth statement. By tracking your assets and liabilities you can identify where you are on the road toward your personal financial goals and pinpoint obstacles that might be getting in your way.  Each financial transaction you are a part of should have a defined purpose.  Your spending should have a plan.

To figure net worth tally your assets and your liabilities and subtract the latter from the former. While it's easier with a simple spreadsheet program, you can certainly do it by hand.

But oddly, most folks never get around to figuring their net worth.

Here’s how to go about finding that important number.

Tally Your Assets

Your assets are the things you own, from your blue chip stocks to the change in your pockets. So go through your files—and empty out your wallet—and calculate your worldly goods. 

"One area to pay attention to is your collections: antiques, artwork, jewelry and so forth,” Sullivan says. “If you have never had your collections appraised, completing your net worth statement should prompt you to do so. And, if you have never had them insured, this process is a good reminder to get that done, as well.”

This is also a good time to consider your heirs and put your financial house in order. As you’re going through your files, update your list of what you own and where it is. That will keep the executor of your estate from racking up billable hours chasing down rumors of a second safety deposit box.

What not to include: Social Security and pensions that will be paid as annuities or income streams. And don’t include your assets of future value—things like pension plan or Social Security death benefits, life insurance policies or Veteran Administration benefits. For this project, look at current assets—your accumulated wealth—only.

Now pause for a moment to savor that big number before you go on to…

Total Your Liabilities

Your liabilities are the things you owe, from the mortgage on your vacation home to the balance on your platinum card to the $20 you promised Larry in accounting you’d throw into the pot for the VP’s retirement gift.

This process forces you to sit down and consider your total liability instead of just your next month’s credit card bill.

Find the Bottom Line

• Check your diversification to make sure you’re not sitting on too much cash.
• Weigh your comfort level with your liabilities. Ensure that your debt hasn’t crept up too much.
• See how much your net worth has grown or shrunk in the past 12 months.

Now file your net worth statement away until it’s time to check it again.

Many people like to use their year-end account statements to figure their net worth annually. If you have accomplished some of your major financial objectives—perhaps accumulating your first million and eliminating your credit card debt—every two years is probably often enough for an update. You may want to check your progress more often, though, if you are working on a specific goal, like paying off the mortgage.

And if you find yourself updating your net worth every day before lunch, back off. Perform a checkup too often, and your statement becomes deceptive. Because at that point, your net worth is just swinging with the financial markets.

However often you choose to figure your net worth, your personal balance sheet can help you make sure you’re on track to meet your financial goals—or figure out what’s causing you to get stuck.

If you are going to manage your wealth you need to measure it.

 is an online budgeting system that makes it easy to create an effective budget and track every aspect of your spending as it happens. It will help you always know exactly how much you have left to spend, instantly know the impact of every spending decision, effectively manage credit card spending, and quickly create an easy to use household budgeting plan.