Everything You Need to Know About Tracking Net Worth

We’ve all Googled a celebrity’s net worth. (Did you know Alec Baldwin is worth $65 million?!) But how many of us have calculated our own?

Calculating and tracking your net worth is the best way to boil your financial progress down to one number. It can help you make progress towards your money goals and make more informed decisions. Here’s what you need to know.

What Is Net Worth? 

Your net worth is the total value of all the things you own minus the total of all the money you owe. Simple as that.

The things you own, or your assets, include cash, cars, real estate, and investments. The money you owe, or your liabilities, including your mortgage, student loans, car loans, and credit card debt.

Why Is My Net Worth Important? 

Because appearances can be deceiving.

In a world of easy credit, it isn’t hard to convince yourself you own more than you do. Your net worth is a snapshot that shows you what you really own, and what belongs to the bank.

Net worth also helps you track whether you’re spending your money on things that improve your long-term wealth or destroy it. Even if the proverbial Joneses bought that BMW in cash, the quickly declining value is going to show up in their net worth.

By investing in things that increase in value over time, you’ll move towards your long-term money goals faster. Especially if you can avoid high-cost liabilities or assets that decline in value. And if you want to see if you’re succeeding, all you need to do is check the trajectory of your net worth.

How Do I Calculate My Net Worth? 

Did you path fifth-grade math? Then you’ve got what it takes to find your net worth. Here we go.

Adding Up Your Assets

Here you want to include any asset of significant value. Yes, if you really needed to you could sell the pile of books and clothes in your basement. But let’s not get distracted by the little things.

Your assets should include:

• Cash: Checking accounts, savings accounts, CDs. That wad of emergency cash your husband insists on keeping in a secret place. (Oh wait, is that just me?)
• Real estate: This includes your house and any rental properties that you own. Zillow can give you an estimated value. When we owned a home, I used to discount the Zillow estimate by 6% to represent the real estate commission and closing costs.
• Retirement accounts: Value of 401(k)s, 403(b)s, 457s, 401(a)s, Thrift Savings Plans, and IRAs.
• 529 Plans: Even if the funds are set aside for your child’s college education, it is still yours until he or she gets there. Include it in your net worth.
• Investments: Value of any stock, bond, or alternative investments you have. Make sure not to double count investments that sit in your retirement accounts.
• Cars: Use the Kelley Blue Book value of your cars.
• Other assets: I don’t usually include any assets outside the items above, but if you have highly valuable artwork, jewelry, or other things you could reasonably sell you can add them here.

Total up all your assets. You’re officially halfway there!

Calculating Your Liabilities

This part is… less fun. Now we have to add up all the money you owe to people. Boo.

Your liabilities should include:

• Mortgage
• Auto loans
• Student loans
• Credit card debt
• Personal loans
• All other debts: Boat loans, motorcycle loans, consumer financing (buying a couch, phone, etc.). This isn’t like assets where the little things don’t need to be included. If you owe money somewhere, put it on the list.

Total up all your liabilities. We are in the final stretch.

Simple Math to Fine Your Net Worth

Are you ready for this? Subtract your total liabilities from your total assets. That’s your net worth.

How Do I Track Net Worth? 

What your net worth is today doesn’t really matter. The important thing is where it is going. Which means you need to calculate it regularly.

I use a free service from Personal Capital to keep track of Jeremiah and my net worth over time. All our accounts are connected and update automatically. It also has helpful charts to show our progress, and I can click to see the trajectory of one particular asset over time.

However, if you aren’t opposed to logging into all of your accounts regularly, a simple spreadsheet or notebook can work well. Bullet journaling, something I love for my personal and business goals, can also be a fun way to keep track.

How Do I Increase My Net Worth? 

If you want to grow your net worth (who doesn’t?), there are a few fundamental ways to get things moving in the right direction.

1 – Getting Your Spending On Track

Review your budget and look for places where you can cut your spending. The more money you can save each month, the more that asset column grows. And it compounds every month you keep your spending lower.

For required expenses, like home and insurance, do some price comparison to discover if you can lower your cost.

But take a hard look at expenses that feel required, but really aren’t. Food is an excellent example of this for many families. You have to eat, but even if you prefer organic, local produce and meat, you don’t have to spend $1,000 a month. Focus on just that category for a month and learn to reduce food waste. I guarantee you’ll see an impact on your budget.

For entertainment and fun expenses, don’t cut to the bone. Live needs to be worth living. But embrace the things that truly make you happy while questioning the line items in your budget that are there because you think they are supposed to be. Your money should serve your needs.

2 – Paying Down Debt

Want to grow your net worth? Crush that liabilities column.

Make a plan to pay down debt with solid, measurable goals. How much do you want to pay off a month? Are you going to start a side hustle or pick up some extra projects at work to speed up the process? Then get tracking.

Just like following your net worth, tracking your debt paydown shows you that you’re making a real impact. Printable trackers are great because they give a clear visual of how you’re doing. And coloring your chart or marking off debt gives a tangible feeling to your hard work.

Remember that paying off debt has a double benefit. Not only do you reduce your liabilities, but you free up the cash you were sending to interest payments to invest and grow your net worth faster.

3 – Earning More Money

Earn more or spend less? Why not both.

Whether you finally ask for that raise or start a side hustle, there are so many ways to up your earnings in today’s world. Increasing your income gives you more cash every month to save or invest. And those dollars grow your net worth.

Just remember that increasing your income doesn’t matter if you increase your spending by an equal amount. Lifestyle inflation is what makes many doctors, lawyers, and investment bankers broke. And it can cap your net worth quickly.

4 – Investing in Appreciating Assets

Shoving your money in a Gringotts vault will increase your net worth. But it will keep the continued growth entirely dependent on your working hours. To continue to grow your wealth, you would have to work to add more money to the value. And to outrun the natural decline in money already saved due to inflation.

Alternatively, you could invest in assets that increase in value over time. Investing helps your wealth grow while you sleep.

What are appreciating assets? Stocks, bonds, commodities, real estate.

Not your neighbor’s boat or that new car. Those things diminish in value over time and slowly deplete your net worth.

More Frequently Asked Questions About Net Worth

Net worth is a pretty basic thing. Assets minus liabilities. But that doesn’t mean there aren’t common questions. Especially when people try to apply the principles to improve their financial lives. Here are the ones I hear most often.

My net worth is negative – Is that even possible?

Yup. If you have more debt than assets, it is entirely possible for your net worth to be negative.

A lot of people right out of school have a negative net worth, as they are handed student loans with that new degree. Without the years to build up assets, the debt offsets any savings or investments they currently have.

It can also happen after you buy a home. Since you’re likely only putting 20% down (sometimes less), that 80% of your home value might offset all your other assets. Let’s say you have $40,000 in retirement, an $8,000 car, and put $40,000 down on a $200,000 house. You have $88,000 in assets. But your new $160,000 mortgage means your liabilities are almost double that amount. Your net worth? Negative $72,000.

If your net worth is negative, one of your first financial goals should be to pay down debt.

What should my net worth be?

There are a million ways to answer this question. Do you want to know by your age group? Income level? Career path?

What your net worth should be is unique to you and your goals. Comparing yourself to others isn’t usually helpful. Especially as most people don’t have enough saved and patting yourself on the back that you have more than average won’t help determine if you have the amount you need.

First, determine your financial goals and use that to back into how much money you need. But, if you really need a benchmark, here are some ideas.

Millionaire Next Door Formula

One of my favorite books on stealth wealth is The Millionaire Next Door by Dr. Thomas Stanley. He has a simple formula for determining if you are saving enough money based on your income and age. Multiply your age times your realized pretax annual household income from all sources. Divide by 10. This should be your net worth (minus any inherited wealth).

Example: Mary is 34 and makes $70,000 a year.
34 x $70,000 = $2,380,000
Divide by 10 = $238,000
Mary’s net worth should be $238,000.

Keep in mind; this formula definitely has some faults. If you’re young, it is almost guaranteed to overstate the amount you could have saved. And if you’ve recently changed careers to a much higher income, the numbers will also be far too high.

Median Net Worth By Age

Time is one of the most important factors when it comes to net worth. So, here’s the median net worth broken down by age group. This is 2013 data (the most recent available from the U.S. Census Bureau) and includes home equity.

How often should I calculate my net worth?

Quarterly is an ideal place to start.

Calculating your net worth monthly can be a useful exercise if you have a regular family budget meeting. But most of the time your net worth won’t shift much month-to-month.

Alternatively, only checking your net worth annually won’t give you a sense of positive or negative progress. You could miss bad money moves or investments that are hurting your wealth generation.

Is all net worth created equal?

Not exactly.

Someone who has $2 million in profitable rental assets can retire a lot sooner than someone with $2 million tied up in their personal home. The rental assets bring in money every month. Your home? Not so much.

For this reason, I track three different net worth numbers. My family’s total net worth, including all assets and liabilities. My husband and my personal net worth, subtracting the boy’s college savings. And our financial independence net worth, which subtracts out things like cars and savings for our homestead.

Differences in net worth

• Income Generating vs. Not Income Generating: Some assets are appreciating or cash flowing investments that turn your money into more money. Think stocks, bonds, rental properties, and so on. Alternatively, some assets don’t bring in any income. Like your primary residence, cars, or vacation home. If you’re chasing financial independence, you want to track your income generating net worth and grow that faster than non-income generating. (Pssst, that means backing out your home. Unless you plan to live on your home equity.)
• Liquid vs. Illiquid: There are assets, like stocks and bonds, that are easy to sell piecemeal as needed. There is a market where someone consistently wants to buy what you own, and you can exchange in an instant. Other assets, however, are harder to move. It takes time and cost to sell them. Precious gems, vintage cars, and real estate are all in the less liquid category. Knowing the split is essential in planning for retirement.
• Intended Use: This one’s easy. If you have $20,000 saved for your daughter’s college, it doesn’t really count in your net worth. Back out money that is earmarked for expenses that aren’t your own.

Should I track net worth and budget?

Yes! Your net worth is the one number that will tell you the progress of your financial position. But it won’t help you make real improvements. Your budget is what enables you to take control of your spending and direct dollars towards your goals. Which, in turn, improves your net worth.

Ever since college I’ve used YNAB – You Need A Budget, to track every dollar of my spending. It took some work at the beginning. But budgeting has been instrumental in avoiding lifestyle inflation and increasing my net worth to where it is today.

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Net Worth Is Your Most Important Financial Stat – Do You Know Yours? 

Assets minus liabilities. A simple formula, but a powerful one as well. Your net worth can tell you how you’re progressing towards your financial goals, the effectiveness of your investments, and when you’re ready to retire.

If you haven’t already, it’s time to discover your net worth. And then get down to growing your wealth.

What else would you like to know about net worth? Drop a note in the comments!