Net worth calculator: How to find your net worth on paper

Financial Literacy

Net worth calculator: How to find your net worth on paper

What's your net worth? Find out here.

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Net worth calculator: How to find your net worth on paper

A person’s net worth is the total value of their assets, minus any outstanding debts. In order to calculate your net worth, you start by totaling the value of all of your assets such as cash, savings, and the value of property you own, and then subtract your total liabilities, such as car loans and credit card debt.

Calculating and tracking your net worth is a critical part of achieving financial independence. Most experts say that, in order to achieve financial independence, you need to build your net worth to exceed 25x your annual expenses. And if you want to improve your finances, you first have to know where you stand. You also need to be able to set realistic goals that you can track over time.

Calculate your net worth

The 5 steps for finding your net worth

Finding your net worth is relatively easy, but it’s important to include the right items in order to get an accurate number. Otherwise, you won’t come away with a good idea of where you stand, let alone a solid metric that can be used to set specific, actionable goals.

1. Write everything down

Start by listing everything in one place—all assets, debts, income, and expenses (these will help to make sure you don’t miss any debts). Be sure to include any mortgage balances, rent payments, credit card debts (even on cards that aren’t charging interest). Even medical debt should be included.

You can arrange these notes any way you’d like, or not at all. Feel free to use columns, boxes, flowcharts, spreadsheets, notepads, or sticky notes—whatever works for you.  

Side note: If you’re just beginning to take an active approach to improve your finances, you’ll find a common refrain that you need to write things down, so get used to it. Tracking income, expenses, assets, and liabilities, are the only sure way to get an accurate read on your finances and develop an understanding of how you can improve them.

2. Total up your assets

Once you have everything written down, add up the values of everything that contributes to your net worth. This should include any cash and bank account balances, as well as the values of everything that you own—property (including your home and cars), securities in investment accounts, etc.

Essentially, you want to add up the value of your cash and anything that can be sold for cash. So, include everything from your 401(k) balance to antiques and artwork.

Just be realistic about the values you assign.

When coming up with a total, it’s a good idea to ignore any intangible assets—in business, goodwill would be an example of this. Also, ignore any assets that aren’t really marketable—like any businesses that you’ve started that don’t actually have revenue. While you can include the values of any debts that you’re owed, don’t include any debts that you aren’t likely to actually collect.

3. Total up your debts

Now that you have a list of everything that contributes to your net worth, you need to come up with a list of everything that reduces it. This should include any money that you owe to anyone for any reason, from home loans to student debt, credit card balances, and so on.

It’s also a good idea to include rent that you owe under the remaining term of a lease since this is money that you’ve actually obligated yourself to pay. So, if you just signed a new 12-month lease on an apartment for $1,000 per month, that’s a $12,000 debt that you now owe a landlord.

The same would also be true for any payments remaining on car leases, as these are also debts that will come due. (In doing this exercise, you’ll find that leasing is just like financing, but with no corresponding asset because you can’t sell something that you lease.)

The bottom line here is to try not to ignore any outstanding debts. It’s important to include everything in order to get a conservative estimate of your net worth.

4. Subtract your debts from your liabilities

This part is pretty self-explanatory. All you’re doing is subtracting the total amount that you owe other people or businesses from the total value of your assets.

In other words, if you sold everything and paid off all your debts, this number will tell you how much you would have left.

5. Cry and/or celebrate

Now that you’ve found your net worth, you may find that you’re doing better than you thought. Or, maybe the resulting number is a wake-up call.

The thing to remember here is that tracking your net worth over time is a good reflection of how you’re doing financially, but your net worth doesn’t define your success. If your feelings about your life and your self-worth are wrapped up in your calculated net worth, then you should probably change the way you think about money.

Instead, your net worth should serve as a source of realistic reflection about the progress you’re making in your financial journey, as well as a concrete metric that you can use to set real, tangible, short- and long-term goals to which you can hold yourself accountable.

Why net worth matters (or doesn’t)

Mentally speaking, your net worth doesn’t—or, at least, shouldn’t—define your happiness.

It’s not like your net worth is taxable (except for the estate tax; but if your net worth is being subjected to estate tax, it means you’re already dead).

Your net worth is just a number, but it’s a critical metric in determining how close you are to financial independence or being able to retire early.

So, if you do hope to achieve independence or retire early, your net worth is the number you need to focus on growing.

As the net worth calculator suggests, there are basically two ways to do this:

  1. Acquire assets, or
  2. Eliminate debt

There are numerous ways to do both of these things. For example, to acquire assets you can cut spending and store cash. Or, you can invest cash in things that will make you money.

Similarly, to pay down debt you can use the debt snowball or avalanche methods (pay off small balances first and gradually tackle higher balances, or pay off highest-interest debts first and work your way down by interest rate).

Which of these are right for you will vary over time, but understanding your net worth and the corresponding assets and liabilities is the only sure-fire way to make the right decision for you.

The 4% rule

Also called the rule of 25, the 4% rule is the most-oft cited financial rule among FI/RE-ers. It says that, in order to be financially independent, you need to build your savings to equal or exceed 25 times your annual expenses.

You’ll notice on the net worth calculator above that we included a line for “maximum annual expenses for financial independence” using the 4% rule. This line reflects the maximum amount that you can spend each year, based on your current net worth.

If the number is considerably lower than your current annual expenses, it means you’ve got a ways to go before you achieve financial independence.

So, if financial independence is your goal and you didn’t like the number you found using the net worth calculator or steps above, be sure to check out our article on four strategies you can use to start building wealth.

In the meantime, there may be some things you can do to give your net worth a quick boost.

8 quick things you can do to boost your net worth overnight

1. Pay off a debt

Start by paying off a debt of some kind—even if it’s a small one. Pick a credit card or a student loan with a small loan balance, for example. Save for a few months, and pay it off.

Relieving even a small debt will immediately boost your net worth and also give you some momentum because you’ll no longer have monthly payments relative to that debt.

2. Enroll in your company’s retirement plan

If you have a retirement plan at work and you haven’t yet enrolled, start deferring a portion of each paycheck and contributing to a retirement account. This will allow you to start accumulating savings and force you to adjust your spending to allow for savings.

And, if your plan is through work, you may even get a match from your employer on any contributions you make. This is free money—it effectively serves as an immediate 100% return on any money you invest, up to the limit of the match.

3. Invest savings in the stock market or an interest-bearing account

If you already have a retirement account that you contribute to, start taking part of your savings each month and move that money into a savings or investment account that will allow it to start growing. This will help you start growing savings passively.

4. Make an extra car or mortgage payment

Even if you can’t pay off a loan completely, making an extra payment (above the monthly scheduled payments) for a mortgage, car loan, or student loan, goes directly toward the loan balance. If you continue to make extra payments, you can pay off the loan early.

But, even if you just make occasional extra payments, those payments go directly toward building your net worth and, because of how loan amortizations work, will mean that your loan payments will stop ahead of schedule.

5. Give up booze for a month

For millions of Americans, booze are an integral part of our culture. We do it so much that we don’t even think about it, let alone how much we spend on it.

Taking even a brief break from drinking can be a great way to cut spending. Plus, giving it up for a month can be eye-opening as to how often you drink without thinking about it. You certainly don’t have to give it up long-term if you don’t want to, but, as with anything, be more intentional about it.

6. Convert old clothes to cash

If you want to give your net worth a quick shot in the arm, one of the best ways is to sell something. We all have stuff that we don’t use or wear anymore, whether its clothes, accessories or jewelry. Selling things you no longer use allows you to convert assets you aren’t using into cash that you can invest to make money.

7. Considering buying instead of leasing

When it comes to either housing or transportation, there are basically two ways to build wealth. You can either buy an asset that you accumulate equity in as you make payments or you rent/lease something that is considerably under your budget, so you can accumulate savings through other means.

Buying a home is especially beneficial for building your net worth because mortgage interest is tax-deductible. Plus, if you have any self-employment income, owning a home opens you up to lots of other tax deductions, like for a home office.

8. Develop multiple streams of income

It might seem obvious, but we’d be kicking ourselves if we didn’t mention another way to increase your net worth: make more money and build your wealth. There are a handful of strategies you can use to do this, and you can learn more about them in detail, in our wealth building guide.

A final word

If you’re just starting out on your journey to financial independence, calculating and tracking your net worth is one of the things that you need to get accustomed to doing, in order to track your progress and set short- and long-term loans.

Still, net worth isn’t the final arbiter of success—it’s just a number. So the same way your age shouldn’t define you, neither should your net worth. Keep that in mind as you calculate your net worth and determine the next steps on your financial journey.

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Dock David Treece
Dock is a former financial advisor and an experienced real estate investor who loves helping people find ways to build and conserve wealth. He has been featured by CNBC, Fox Business, and Bloomberg.