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How to Calculate Your Net Worth

This article was written by in Personal Finance. 5 comments.

When I put together my monthly financial reports, I tend to get questions about how I decide what to include and what not to include in my balance sheet.

The purpose of determining your net worth is not to compare yourself with others. The real reason to do these simple calculations each month is to track your progress from one month (or year) to the next. Once that is established, the details behind the calculation don’t matter as much as the consistency. As long as you’re calculating your net worth the same way each month, you will get a good idea of your progress.

That being said, your net worth is one thing only: the value of all your assets reduced by the value of all your liabilities. If you exclude the house in which you live from the calculation, that’s fine. In fact, doing so may even give you a better picture of your financial well-being. But if you do, the number on the bottom line isn’t your net worth, it’s your net worth minus primary residence.

CalculatorAfter establishing that your net worth by definition is one specific calculation, the question that remains is which measurement do you really want to track. What are the components that would have the most meaning for you? Your household inventory would be included in your true net worth (though I admit I don’t include it in the reports I publish for myself), but you’re unlikely to liquidate clothing, so the number may be meaningless for you. In the same respect, your car is not a *financial* asset the same way money in the bank is, so there may be no reason for you to track its value from month to month.

What about your primary residence? If you own the home in which you live — a major asset — the only way you’ll ever see the real value is when you sell. In most cases when that happens, you’re buying something else with the cash right away. On the other hand, the liability associated with the house, a mortgage, might be a good candidate for tracking since it is debt that you’d like to see disappear.

Some like their calculation to reflect the closest value that would result from liquidating all assets to cash in hand. That would mean that in addition to your 401(k) account (an asset), you’d have to include a related liability which would contain the amount you would pay for taxes and early withdrawal penalties. Not only would your house needs its associated mortgage, but an estimate of fees that would be paid to a broker to market and sell the house.

Personally, I think some of this detail goes too far. While it’s a great idea to treat your personal finances somewhat like a business, it shouldn’t have to be an excessive chore.

Since the purpose of the calculation isn’t to compare yourself with others, it doesn’t matter what you choose to include as long as you’re consistent each month, and the numbers are meaningful to you. For a starting point, here is an Excel template for a net worth report (balance sheet) that I put together almost a year ago, based on the reports I use. It can easily be customized and adjusted to include or remove financial lines depending on what you feel is important to include.

Published or updated May 24, 2007.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 5 comments… read them below or add one }

avatar 1 Anonymous

There is also an excel template from that can help you get started calculating your net worth.

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avatar 2 Luke Landes

Chris: Thanks for pointing that out!

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avatar 3 Anonymous

Good overview of the motivation for tracking net worth. It is for personal goal setting, not a means to tout one’s value–which of course, has nothing to do with money.


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avatar 4 Anonymous

I do the calculation to see how much progress I have made in the past month, though I may not do anything differently from month to month. It helps me get motived.

As for the calculation itself, I usually don’t include any item related to housing, neither as assets nor as liability. It’s just very difficult to get an accurate estimate of the market value. I feel including it will skew the number.

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avatar 5 Anonymous

Including the value of your house in the net worth calculation might skew the results – sure the value of your own home has gone up, but you gotta live somewhere. The value you’ve gained in property appreciation will be roughly offset by the price you’d have to pay for a new house if you were to sell.

You do, however, want to include the equity that you accumulate in investment properties. As Sun points out it can be tricky to get an “accurate” number, but remember this calculation is for you, so no point in cheating.

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