Don’t judge a book by its cover.
You can’t always measure a person’s financial success or wealth based on what they buy, wear or carry around.
Just because someone purchases all the new swaggy things - nice car, brand name clothes, jewelry, big house… doesn’t mean that they are financially sound. We all know the phrase “Instagram vs reality”. That’s a real thing here. Well, in this case, it would be “appearances vs net worth”. AKA that guy who’s always stuntin his Ferragamo belt and Gucci sandals might actually have a smaller net worth than you with your allbirds.
WHY IS KNOWING YOUR NET WORTH IMPORTANT?
You’ve probably heard some celebrity’s “net worth is $10 million” - do you know what that means? (hint: it is not their annual income) Pop quiz time! Do you know your net worth?
Your net worth is the most important financial number that you need to know. This figure will help you understand (or force you to confront the realities of 😬) your current financial health. Only by knowing where you stand financially, can you better plan and execute your financial efforts. And by tracking it over time, you can determine if you are headed in the right direction or be hit with a wake-up call if you are not on track.
DEFINITION OF NET WORTH
Simply put, your net worth is what you own (assets) minus what you owe (liabilities).
Assets - Liabilities = Net worth
If the figure is negative, it means you owe more than you own. If the number is positive, it means you own more than you owe. ✋ A negative net worth does not necessarily indicate that you are not financially responsible; it just means that at this moment, you have more liabilities than assets (*see note on student loans below).
HOW TO CALCULATE YOUR NET WORTH
Calculating your net worth is easy! To do so, follow the steps below:
List all of your assets: Cash (checking, savings), investments (stocks, bonds, real estate), retirement accounts (401k), home value, autos value, etc.
List all of your liabilities: Credit card balances, personal loans, mortgage, auto loans, student loans, etc.
Subtract your liabilities from your assets: The remaining balance is your net worth
If you’d like to calculate your net worth, we’ve made a simple spreadsheet to get you started through the button below:
HOW OFTEN SHOULD YOU CALCULATE YOUR NET WORTH
Each time you calculate your net worth, you are only reviewing your financial health at that moment in time. This can change day-by-day depending on what types of assets you own (i.e. stocks values moving). Similar to how we have routine dental cleanings, it’s good hygiene to calculate your net worth periodically (i.e. quarterly). Personally, I track mine at the end of each month.
ADDITIONAL NOTES
Home value
If you own a house (or condo / townhouse), you may have a mortgage that you are currently paying down. In this case, you will want to record the value of the home under your asset, and the remaining mortgage balance under your liabilities. An easy way to estimate the value of your home is by checking Redfin or Zillow. Personally, I used Redfin and stuck with it to be consistent, although both work perfectly fine.
* Student loans
Student loans sometimes carry one of the largest debt balances that may result in a negative net worth. This doesn’t mean your financial health is bad. Your education is an investment (thus, an asset) that will help you increase your income opportunities in the future. However, at this point in time, it isn’t something that you can put a monetary value that’s easily quantifiable so belongs under liabilities until the glorious day you pay it all off.
If you’d like to calculate your net worth, we’ve made a simple spreadsheet to get you started through the button below:
