Knowledge is power, after all.

By Lauren Phillips
February 05, 2021
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Unfortunately for math-fearers everywhere, personal finance—or having a good grip on your money—is all about the numbers. Basic budgeting is making sure the amount of money you spend is less than the amount you earn, and reaching financial goals, such as saving up to buy a house or planning for retirement, is a matter of doing the math to see how much you need to save or invest to get there.

If reaching major (or even minor) financial milestones is your focus right now, there's one money calculation that you'll want to do to get a better sense of your progress: calculating your net worth.

With a little math and a look over your bank accounts, you can figure out exactly how much money you're worth. Obviously your worth as a person goes beyond your net worth, but for planning purposes, net worth is a great indicator of the progress you're making toward your financial goals.

What is net worth?

"Your net worth is taking all of your assets and subtracting your liabilities," says Rob King, CLTC, a financial advisor with Northwestern Mutual.

Basically, your net worth is the value of all your holdings—think bank account balances, any properties you own, investments, and the like—minus any debts you owe; it's a measure of how much money you really have. If you were to sell all your properties and investments, combine all your money in one account, and then pay off any debts you have, your net worth would be the final balance in that bank account—just remember that your net worth does not equal your self worth, says Brittney Castro, CFP, an advisor with personal finance app Mint.

How to calculate net worth

To calculate your net worth, add together all the money you have and the value of your property and then subtract all your debts. Easy, right?

Well, it's easier said than done: To get started, add up the balances in all your checking, savings, retirement, and investment accounts. Don't overlook any account—King says it's especially important to include retirement accounts in this calculation. Your net worth is ultimately the number you're going to retire from, he says, so the money you've tucked into your retirement accounts is important here, even if you can't withdraw that money and spend it without incurring penalty fees. The larger the balances of those accounts, the closer you are to being ready for retirement, even if you think of that money as off-limits for now.

Next, calculate the value of any property you own, including a boat, a car, jewelry, your home, and more. (You don't need to go digging through your closet to find the value of all your clothes, unless you're a luxury item collector—chances are, the value of those items won't be enough to shift your net worth much.) If you were to sell all your property today, how much would it realistically earn? Add that number to the sum of all your account balances.

Now calculate the total balance of all your debts—think credit card balances, mortgages, student loans—and subtract that number from the value of your accounts and possessions. The final number is your net worth—and "it's quite OK if you have a negative net worth," King says. "If you're going through and you're doing your net worth for the first time, if it's negative, that's OK. You have to start somewhere."

Some clever apps and services will even do the work of calculating your net worth for you. You may use one bank for your emergency fund but pay your bills out of a checking account with a different bank. Having your money scattered across accounts can make it difficult to see exactly how much you have, King says, and it underscores the importance of calculating your entire net worth periodically. Using one tool—such as Mint, which recently refreshed its snapshot view to show net worth—to track all your accounts in one place can make calculating your net worth easier.

What should your net worth be?

Even before you calculate your net worth, go ahead and forget any preconceptions you have about how much money you should have. (And don't even think about looking up the net worth of your favorite celebrities—no one benefits from that sort of comparison.)

"Too many people fall victim to worrying about 'where they should be at this age' with their finances," Castro says. "But that is not an accurate way to measure financial success. Everyone is on a different financial journey."

Instead of focusing on your age and what kind of net worth you think you should have, focus on the shift in your net worth year after year. "Calculating your net worth every year allows you to see if you are moving in the right direction, i.e., growing your net worth every year," Castro says. "If not—then you can ask yourself why."

Many people—especially younger people—may initially have a negative net worth because of student loans or other early debts, but the key is to look at how your net worth changes over time. You want to see improvement, and if you don't, you can look at why your net worth didn't improve and make adjustments to your saving, spending, or investing. And don't get discouraged by a short-term dip in your net worth if you made a large purchase (like a house) or just started investing: Long-term investments won't begin to contribute to your net worth immediately.

Calculating your net worth is supposed to be a motivational task that helps you put your finances in perspective and make a plan to improve them, not an opportunity to beat yourself up over financial missteps or compare yourself to others. Approach it from that perspective, and you'll see your net worth shift in a positive direction before you know it.