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Net worth is the dollar value of all your assets minus all your liabilities. You can calculate your net worth by adding together the amount in every financial account you have, adding the amount of money you could reasonably receive if you were to sell any valuable possessions you own (its “fair market value”), and subtracting any debts you owe. For example, here is a hypothetical net worth calculation:
Your own net worth calculation may be much more detailed or include a lot fewer lines. This hypothetical person has a home, car, and piano. You may not. They also have a mortgage, student loan debt, a car loan, and an outstanding credit card payment. You may not. You also may have a lot more. Other items to include may be the value of any business(es) you own if you sold it(them), other accounts (brokerage accounts, CDs, etc.), real estate investments, and more.
Tracking Your Net Worth
Tracking your net worth is a helpful habit because it helps you assess whether you are adequately growing your net worth to meet your goals. There are multiple ways to track your net worth, including apps like Personal Capital or YNAB, a basic Excel spreadsheet, QuickBooks or Quicken, a balance sheet updated at regular intervals, or even a physical chart (such as a variation of Vicki Robin’s wall chart that focuses on net worth rather than expenses and income). I just have a basic Excel spreadsheet with the accounts listed vertically, and dates across the top of the page as I update the numbers for each account. This ends up looking something like this, but with more lines:
The sum of all these lines is your net worth on that date. You can calculate your net worth as often as you want, but worrying about daily, weekly, or monthly fluctuations is not prudent. If you are investing heavily, your portfolio may even go down over the course of a year or a couple years (like last year, which was not a great year for the market) because the market fluctuates. Your net worth is something you want to grow over time, so just make sure you continue to contribute to your investments. Using dollar-cost averaging, where you contribute a set amount at set intervals (monthly, each pay period, etc.) allows you to spread out your risk by buying more shares when they are less expensive and buying fewer shares when they are more expensive.
An important point, particularly for any tangible assets like the piano listed in the first hypothetical net worth list, is that you should only include what you could reasonably expect to be paid if you sold the asset today. Tangible assets are not liquid; the process of exchanging them for money can be more complex than trading a stock or moving money from your HYSA. In my experience, folks tend to overvalue what they could receive for an item today, so estimate conservatively on tangible assets.
What Should My Net Worth Be?
It depends. You should set net worth goals according to your life goals, not because you think your net worth should be a certain number. If you have a lot of debt and are starting negative, set a goal to have a positive net worth by a realistic future date. If you are positive but have not focused on investing, set a goal to reach $100k by a certain date. Tracking net worth is just another data point to provide you a complete picture of your finances over time.
If you want to focus on your net worth further and set more ambitious goals, The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko provides a simplified formula to calculate if you are an Under Accumulator of Wealth, Average Accumulator of Wealth, or Prodigious Accumulator of Wealth. Their thresholds can be intimidating particularly if you are early in your career or job-hopped to raise your salary quickly, but these thresholds can be a fun parameter to use for ambitious goals, particularly if you plan to retire at a young age.
Wherever you are starting, do not feel down about your net worth: Just use it to set some goals for yourself and improve your financial future! The more you understand your financial situation, the more tools you have to shape it into the financial future you want.