List Everything You OwnThis is the fun part. It’s exciting to see all your assets totaled, especially after your investments have grown.
Bank AccountsList all your bank accounts on your spreadsheet. For me, this is money we have on hand at the bank to live. Generally, this money will be flowing in and out over the next month. Since we need it to live, I do not include it on our net worth calculation for this reason.
Investment AccountsGather the amount you have in all of your investment accounts. List them in your spreadsheet. Use the most current amount available, which is probably today’s value given the instantly updated account values for most investments these days. You can simply log in to your brokerage account and access the amount.
Taxable Investments Vs Tax Favored InvestmentsTake it a step further and separate tax deferred or tax sheltered accounts like IRA’s and 401K’s from taxable accounts. This is for several reasons:
- You usually have less access to the money in your tax favored accounts.
- This money can compound tax free or tax deferred.
- You’ll want to be strategic when it comes to your investments and taxes, and this will help see the big picture so you can do that.
List Other AssetsNext, you’ll want to list your other assets. This will include things like your home, or rental properties if you own any.
How Much Home Value to Include in Net WorthIt can be tricky knowing what value to put for real estate when calculating net worth. Here is my formula to estimate how much value to list in my net worth calculation: I take the dollar amount per square foot that real estate sells for in my neighborhood and multiply it by the square footage of our home. Since our home is older than many of the houses in our neighborhood, I reduce the sales price per square foot to account for that. You can go to open houses in your neighborhood to stay on top of how to value your largest asset. (It’s fun to do this anyway.) Alternatively, you can check online real estate websites and see how much homes in your hood have sold for in the past year. I use Red Fin or Trulia for this. Zillow is also a good real estate app to use for estimating the value of your home. Not all of these real estate apps have all areas of the United States. For example, Taos, NM is not on Red Fin yet. So, if you don’t find your area listed, check another app. Read my related post Does Net Worth Include Your Home?
How to Calculate Your Home’s ValueThen, I take the value I get from multiplying the sales price per square foot by our home’s square footage and deduct the following:
- Real estate brokerage fees
- Closing costs
- Concessions for anything that may need to be repaired before we can close should we sell
Other AssetsIf you have a boat, RV or other asset you can list it here, too. I don’t include our cars in our net worth calculation since we will replace them at a higher cost than their current value when we sell them. So, listing assets you know you will replace overstates your net worth in my humble opinion. Similarly, I don’t list jewelry since most of it has sentimental value and will not be sold. Now total all of your assets.
List Everything You OweThe next step is to list everything you owe. This includes mortgages, credit card debt, home equity loans and any of loans of any type. It’s great to go ahead and list the interest you’re paying on your spreadsheet while you’re pulling loan amounts. This can lead to instant insights about how to be more strategic with loans, including whether to pay them off entirely or refinance. Total everything you owe.
Calculate Your Net WorthThe difference between everything you own and everything you owe is your net worth. A net worth statement is also known as a balance sheet in financial lingo.
Enhance Your Net Worth StatementThere’s one more thing you could add to your net worth calculation that would really enhance it: The return you are getting from an investment. For an extreme but not unusual example, after adding this data, let’s say see you have $50,000 in cash at the bank that is not earning any interest. Maybe, for example, you had it set aside to use as a down payment for a rental property, or perhaps an emergency. Then, you see that you are paying 6% on a loan. Or worse, maybe there is credit card debt that you’re paying 25% on, even for a few months. In this case, you’d be doing yourself a huge favor by paying off the debt. Also, you could put the balance of the $50,000 into a money market account since you could earn at least a little interest and the money would still be there when you need it since money markets don’t fluctuate in value.
The Power of Net Worth CalculationsYou can see the power of calculating your net worth at least once a year. By updating your net worth, you can see if you’re on track to reach financial goals at any given time, and make any needed changes to expedite that journey without doing any work beyond the initial research. Sometimes just a simple strategy shift builds a little more wealth. And by updating your net worth you’ll be able to spot opportunities with clear vision.
The information on this website is for education only and is not to be construed as personal financial advice.