Forget What You Thought-What's Your TRUE net worth?

How many times have you heard discussions around net worth and wondered does anyone really know what net worth is? Would you be surprised to learn that many people aren’t even sure how to figure out their net worth. If you want to determine what your true net worth is, here’s what you need to know.

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Net Worth Defined

Net worth is a monetary figure based on the value of a person’s assets minus their debts or similar financial obligations they might have. A person’s net worth can be either positive or negative, depending on whether their assets outweigh their liabilities or if the reverse is true.

How to Calculate You True Net Worth

If you want to calculate your true net worth, you first need to determine the total value of your current assets and liabilities. Generally speaking, assets can include:

Real Estate
Vehicles
Cash (including money in checking or savings accounts)
Investment Accounts
Retirement Accounts
High-Value Personal Property
And More

However, property you own that you couldn’t easily sell shouldn’t usually be counted as an asset when you’re calculating net worth. The same goes for future earnings.

It’s important to note that the value of many assets fluctuates over time. As a result, your net worth can technically shift up and down every day, even if you make no new purchases and have no change to your debt total.

For example, stock prices may change several times a day, causing the total value of your investment account to shift. When you’re calculating your net worth, you want to determine the value of the assets on the day you perform the calculation. That way, it’s as accurate as possible at that moment.

When it comes to debt, use the current amount owed (or the remaining balance) when you’re determining your net worth. Future interest accrual shouldn’t be part of the equation, even if you plan on continuing to make payments and not pay off the debt in full right away.

Once you identify all of your assets, add their values together. Then, total up your debt load. Once you’ve done that, you simply subtract your total debts from the value of your assets. The number you get is your true net worth.

What Your Net Worth Means for Your Financial Future

It’s important to understand that your net worth is one part of a broader financial picture. In reality, all your net worth does is compare your assets to your debts in a way that results in a single figure.

However, your net worth can become a great planning and tracking tool. While you’re calculating it, you can identify areas where you can make improvements. It may also motivate you to focus on debt reduction and asset growth, causing you to take your situation more seriously than you did previously.

Additionally, by calculating it regularly, you can see how you’re making progress toward various goals. You’ll be able to see how the picture changes over time, allowing you to monitor your financial health.

Have you ever calculated your true net worth? Were you surprised by the results? Share your thoughts in the comments below.

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Tamila McDonald

Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.