How to Calculate Your Net Worth (and Why You Should)

Saving

When it comes to being “good” with money, understanding your entire financial situation is very important. One of the easiest ways to get a bird’s eye view of your financial life is to calculate your net worth. Luckily calculating your net worth is quite easy and straightforward.

I find this exercise to be motivating too.

It ties in nicely with setting goals and working to consistently accomplish small goals you have towards money. 

Let’s dig into the details behind your net worth and find out why it matters.

Different Parts of Your Net Worth

Very simply put, your net worth is your Assets minus your Liabilities. That’s what you have minus what you owe. 

Start by listing everything out in each category. You can write these down, put them into a spreadsheet, utilize an online calculator, or download an app to assist. As always, I prefer a spreadsheet so I can update it monthly and track progress all in one place. It generally takes me about 5 minutes every few months to update my numbers. 

I’ve used apps / websites in the past but I find it a lot easier to just type in the values myself. There always seemed to be some sync issue with other sites and then they are constantly selling you and giving you odd, generalized advice with what to do with their money – pass. 

Here is a simple overview of the things that constitute what you have and what you owe (assets vs liabilities).

What are you worth?

Within each category you can go even further into detail. However, to keep it simple, this is the list I came up with. I also keep mine at a pretty high level, too. 

For the things you have, your assets, I only count things that are “liquid”. Things I could sell reasonably quickly in a pinch. 

Seems pretty straightforward, no? Let’s run through a quick example. 

My Net Worth Calculation A Few Years Ago

This would’ve been me on my journey out of debt, say after I sold my house. I had a negative net worth. While not great, it was motivating for me to see where I was, knowing I had a lot of potential to change this over my lifetime.  

Note that this is all part of something we do together here at JSS when we work together: Get a budget going, track spending, examine your net worth, create realistic goals, and figure out how to hit those goals within a reasonable time frame.

My net worth around 2015

Seeing a negative number may not feel motivating at first, but let’s see how we can turn this into a positive…

Why You Should Know Your Net Worth

At the end of the day it’s just a number, right? 

Kind of. 

To me, acquiring wealth is about freedom. Therefore, getting out of debt and having a good net worth aligns with the goal of financial freedom. 

Once you calculate your net worth, you can begin to plan for the future a little better, too. Something I’ll touch on in a future post are micro-goals. Here’s an example: When my debts are higher than my assets, I break down each debt to see which is causing the most bleeding (highest interest or most mental stress – see this post for more information on debt pay off sequence). 

Once I have a plan to pay off each debt in a certain order, then I know how to direct my actions. When out of debt, then I began by making my goal to get to $10k in my net worth. Then $50k, $100k, etc. Each $100k is a new goal and helps to give me perspective and focus. 

The key there is choosing a goal that doesn’t feel impossible. It will feel like a quick win but really it’s just one more step forward down the path to your actual larger goal (say $2MM or whatever your financial independence number is).

Eventually you will reach financial freedom. That simply depends on how much money you spend and estimate you’ll need for the rest of your time here – another topic that deserves it’s own post. 

For me, this calculation is about perspective. It gives me a high level overview of my finances. It allows me to break down my debts or savings goals into specific, actionable goals. 

Don’t Compare Your Net Worth To Others

When doing research for this post, I came across a lot of statistics regarding net worth. It’s pretty interesting to see, but I ultimately decided not to post it here along with the rest of the post. 

Why?

Because it’s irrelevant to know how you are doing compared to others. Your benchmark for success is and always will be yourself. 

Whether or not you “measure up” to others your age, race, education level isn’t going to help you become wealthy. Your consistent, correct actions will. 

Focus on the things within your control. Get education for your field. Work hard, daily. Develop characteristics such as being a good listener and good leadership abilities (will help at work and with the significant other and with kids, etc.). Cut back on unnecessary spending. The things you do buy, buy quality, long-lasting items. All of these things are within our control and will make you wealthy. 

Now that you know how to calculate your net worth, you can track it over your lifetime. You can consistently try to beat yourself year over year. Thanks to compounding this isn’t too hard, so long as you don’t make any crazy decisions later on in life.

Thanks for reading – here at JSS we enjoy talking about the numbers behind becoming wealthy but more importantly we love deep diving into the mindset and behaviors that will bring you success and a good flow throughout your entire life.

Here are ways to support, stay in touch, and work together:

I look forward to speaking with you and helping guide you down this life changing path.

In health and in wealth,

Seth