Your personal net worth is the combination of your assets (everything you own) and your liabilities (everything you owe). This can be a positive or negative number, and it’s a good reflection of where you stand financially at any given time.
Calculating your personal net worth
To calculate your net worth, add up all of your liabilities, which include the following:
- Car loan
- Student loan
- Credit card debt
- Any other debt
Then add the value of your assets, which include the following:
- Real estate, including your primary residence
- Household items, jewelry and other personal property
- Retirement accounts
- Stocks and bonds
- Life insurance that has a cash value
- Savings bonds
- Money in checking and savings accounts
Subtract your assets from your liabilities, and that number is your personal net worth. This creates a starting point for you to work toward your goals. A low net worth or one that reveals you owe more than you have means you need to save more and spend less. This scenario isn’t uncommon, especially if you’re a young person with a lot of student debt and only a few years in the work force.
How your net worth changes over time
Your personal net worth will go through fluctuations over time. For example, if you pay off a student loan or the market value of your home increases and everything else stays the same, your net worth will improve. In contrast, if you acquire new debt or spend some of your savings on a vacation, your net worth will decrease.
Net worth can even vary from day to day if you have investments such as stocks that naturally fluctuate. These types of fluctuations are normal and shouldn’t be cause for concern. Over time, however, a personal financial advisor can help you determine if you have the right mix of investments.
Improving your net worth
A professional financial planner can help you plan for adjustments you may need to make. For example, you may need a plan to help build your savings or pay off debt. Perhaps your investments aren’t rising in value as quickly as you’d thought, so you may need to allocate them differently.
Recalculating your personal net worth quarterly or at least once a year will be a realistic measure of progress, alerting you to areas that need work as well as showing where you’ve made improvements.