There are many different ways that people will calculate their net worth. Some people might include their vintage coin collection in their net worth, or they may include their car’s purchase price (and not factor in depreciation). Whatever personal variable way their calculate their net worth, the general gist of it is the same.
It’s assets minus liabilities.
As long as the person calculating their net worth keeps the way that they calculate consistent, it’s fine. Personal finance is after all, personal!
What is Net Worth?
Net worth is the calculation of all your assets minus your liabilities.
Net worth is what you own subtracted by what you owe.
If you don’t owe anything, then you’re lucky, it’s just what you own. Net worth is NOT a measure of your self-worth but is in a way, an objective measure of where your finances might stand at a certain moment in time. In essence, your net worth is a measure of your financial health.
You can’t beat yourself up comparing your net worth to someone else because they may calculate it differently, they may have a different way of calculating, they may have different life circumstances. Some people include the family net worth (e.g. spouse’s income and assets) in their calculations, some people don’t. Some people live in low cost of living areas and some people live in high cost of living areas. You can’t compare apples to oranges, but you can compare your calculations to yourself.
The whole point of checking your net worth regularly is to continue to grow your net worth. You want your Year over Year net worth to keep increasing, and this can be done by increasing your assets and shrinking your liabilities. If you don’t have liabilities (lucky you), then you want to continue increasing your assets.
Net Worth Formula
Getting to the basics, the net worth formula is:
Net worth = Assets – Liabilities
Examples of assets include:
- Real estate
- Primary residence
- Cash in Savings Accounts such as
- GIC’s (Guaranteed Income Certificates)
- Registered investments (like the TFSA and RRSP and RESP)
- Non-registered investments
- Car (some people include this in here)
- Mutual funds
Assets would generally not include things like your clothing or designer handbag collection, or even your $12,000 engagement ring, because the resale value of those items are generally not the same (e.g. they are much less), even at an appraised value for an engagement ring.
Examples of liabilities include:
- Mortgage Debt
- Home Equity Line of Credit Debt
- Credit card debt
- Car loan debt (e.g. financing a car, which is what we did even though we could pay for it in cash)
- Student loan debt
How to Calculate Your Net Worth
To calculate your net worth involves just three easy steps.
First: You figure out your assets. Add up all your cash. Basically add up your chequing accounts and your high interest savings accounts. I usually leave the cash in my wallet out of my net worth calculations since it’s usually under $100 anyways.
Then, you add up all your investable assets, like your non-registered investments, your Tax Free Savings Accounts, your RRSPs, your GIC’s or guaranteed income certificates. These are still liquid assets.
Finally the last part of the asset calculation is the other assets that are less liquid, like your real estate or principal residence, and your car. Calculating your principal residence or valuing it is a bit more ambiguous. You could use the municipality assessed value but depending on the real estate market, the actual sale value might be lower than assessed value (or higher in a seller’s market). I use the Canadian Black Book to value my car’s potential resale value, and I do this once a year.
Related: How to Calculate the Return on Investment on your Primary Residence
Second: You figure out your liabilities. Add up all your mortgage debt and your HELOC debt. Add up your car loan debt (financing or leasing) and your student loan debt.
Third: You subtract Assets – Liabilities. You will get your net worth number at this moment in time.
Net Worth Calculator
One of my favourite non-profit websites is Get Smarter About Money and they have a ton of great calculators that spew out fantastic looking graphs and charts. They have a net worth calculator that helps you calculate your net worth, and they are Canadian-centric which is great. The net worth calculator is geared towards Canadians with Canadianesque assets, like TFSAs, and RRSPs and the like.
Related: TFSA vs RRSP Which One to Invest in First
This is what Get Smarter About Money’s Net Worth Calculator looks like.
How Often Should You Check Your Net Worth?
There’s no right or wrong frequency to check your net worth, but I would say that important thing is that you set some time out to do it and you check your net worth on a regular basis.
Personally, I check my net worth once a month and I keep it consistent on the day of the month. I really enjoy it and have been checking my net worth (and writing it down in my little net worth ‘journal’) for over 10 years. I even find it therapeutic to sit down and add up the numbers.
As your net worth grows and more of your money is invested in liquid net worth, for example the stock market, you will find the net worth calculations a bit more trivial. It will be more trivial since more of the fluctuations will be dependent on how the market is doing. And how the market is doing shouldn’t matter too greatly unless you were planning to realize those capital losses.
Even though I still find it helpful to do because when the stock market is down and my net worth is down from the previous month, I tighten my purse strings slightly and am mentally less ‘spend-y’. Kind of like how Warren Buffett is, when he buys his McDonald’s breakfast three days a week, he buys a cheaper breakfast sandwich if the markets are not doing so well (utterly frugal, I know) but it is still never more than $3.17 a sandwich.
How to Increase Your Net worth
Now that you’ve figured out a frequency to check your net worth, the goal as mentioned earlier in this post is to increase your net worth. This is done by increasing your assets and shrinking your liabilities.
Increasing your assets can be achieved by saving money, by increasing your passive income, and by investing in income producing assets.
I had a friend many years ago tell me, that people don’t get wealthy just saving money from their day job. They get wealthy by investing the money that they save from their day job and getting that money to work hard for them.
When you check in with your net worth regularly, you have the opportunity to continue evaluate if your money is working hard for you.
You might also be interested in:
How often do you check your net worth?
Is there a particular system or way that you calculate your net worth?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.
9 thoughts on “Step-by-Step Guide on How to Calculate Net Worth”
I have mine calculated automatically through an online tool provided by my broker. I probably check it several times a month. I do not include the value of personal belongings or autos (depreciating assets) figuring that we buy that stuff for consumption even though it does have value. Tom
@Tom- Someone I know bought an Aston Martin and said it was an appreciating asset. I’m not sure how that’s possible!
I check in my net worth maybe about every 2-3 months. I have a ballpark figure of what it is and when I do calculate it, it’s the amount I figured it would be most of the time. I use Personal Capital to calculate all of our assets since I linked my accounts on there. After that I basically round up any credit card debt I might have(usually under $500) for liabilities. So right now it’s really simple to calculate it for us.
@Kris- Nice and simple to calculate the debt since there isn’t any, great that you don’t have liabilities right now.
So…a confession: I have never checked my net worth. I know, I know! It’s something I have been procrastinating on SO hard…which is silly, because it does seem like a fairly straightforward and basic thing to know, you know? I think it is likely because I’m…not scared, exactly, but I know it’s going to be a negative number. Not that I’m a stranger to that, considering we are still paying back debt, but I guess I just feel like it would be tough to see considering the other big negative number in our life right now. Alternatively, though, maybe it would just be more motivation to continue?
@Tara P- I’m surprised!! Veronika from Debts to Riches tracks her net worth even though it’s negative and it has been inspiring to see her go up so quickly. I think many people who have debt blogs end up doing amazing with “FIRE” (from what I’ve seen anyway).