Calculating Your Net Worth

Assets and liabilities
Calculating your net worth takes you a step beyond the income and expenses exercise you just completed. Your net worth is the overall calculation of what you own and what you owe. While your income and expenses calculations examine the money that flows into and out of your household on a daily and monthly basis, net worth accounts for those items that stick with you longer. Net worth is the difference between what you own and what you owe. The things you own are your assets and what you owe are your liabilities. For instance, if all you own in this world is your car, which is worth $2,500, you have an asset of $2,500. If you have a loan on that car for $2,000, you have a liability of $2,000. Your net worth is your assets minus your liabilities ($2,500 - $2,000 = $500) so in this case, your net worth would be $500.

Using the Net Worth worksheet, first list all of your assets. Use the market value of each item, not what you bought it for or what a replacement would cost. Next, list all your liabilities (or debts). It is helpful to write your loan for a certain asset side by side (for instance, list the value of your car and your car loan side by side). To find your net worth, subtract the total of your assets from the total of your liabilities. Your net worth is your household's monetary wealth.

Income versus wealth
Notice that your net worth, or wealth, looks at something very different than your income and expenses. A person who earns a large sum of money every year is not necessarily a wealthy person. If a wealthy person spends most of their money on consumables such as dining out and expensive vacations, there are few assets left over. In order to be wealthy, a person must invest their money in something that will remain with him or her over the long term, an asset. You can be a wealthy person then, even if you don't make much money. If you put as much money as you can toward this asset side of the page, then you will build your wealth over time.

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