Understanding Net Worth: What to Include in Your Calculation

by

Understanding Net Worth: What to Include in Your Calculation

When it comes to personal finance, few numbers are as telling as your net worth. It serves as a snapshot of your financial health, showing whether you’re moving forward, standing still, or drifting off course. But figuring out what belongs in that number—and what doesn’t—can sometimes feel a bit murky.

In this post, we’ll walk through what to include in a net worth calculation. No pressure, no jargon—just a clear and thoughtful guide to help you reflect on where you stand financially.

What Is Net Worth?

At its simplest, your net worth is the difference between what you own (your assets) and what you owe (your liabilities):

Net Worth = Total Assets – Total Liabilities

It’s a single number, but one that can tell a much bigger story about your financial life.

Assets: What You Own

These are the things you possess that hold value. They can be tangible (like your car or house) or intangible (like investments or savings). Here’s what typically counts:

1. Cash and Cash Equivalents

  • Checking and savings accounts

  • Physical cash

  • Certificates of deposit (CDs)

  • Money market accounts

These are the most liquid assets—money you can access easily and quickly.

2. Investments

  • Retirement accounts (401(k), IRA, pension funds)

  • Brokerage accounts

  • Stocks, bonds, mutual funds, ETFs

  • Cryptocurrency (if applicable)

Though these fluctuate with market conditions, they still count toward your overall net worth.

3. Real Estate

  • Market value of your primary residence

  • Any rental or vacation properties

  • Land ownership

Keep in mind: use a realistic market valuation rather than what you paid for the property.

4. Personal Property

  • Vehicles (cars, motorcycles, boats)

  • Jewelry, art, and collectibles

  • High-end electronics

Include these only if you’d consider selling them or if they hold significant resale value.

5. Business Ownership

If you own part or all of a business, include its current valuation—whether through revenue multiples, market appraisals, or accounting books.

Liabilities: What You Owe

These are debts or obligations that reduce your net worth. They’re just as important to count.

1. Mortgages

Include the remaining balance on your home or real estate loans.

2. Auto Loans

Note the outstanding amount—not the total loan, just what’s left to repay.

3. Student Loans

Even if payments are deferred, the total outstanding amount should be included.

4. Credit Card Debt

All unpaid balances should go here, even if you’re planning to pay them off next month.

5. Personal Loans

Include money you owe from bank loans, lines of credit, or even formal arrangements with family or friends.

What Not to Include

Sometimes, people get caught up in whether to include certain items. Here’s what to leave out:

  • Unrealized income (like expected bonuses or tax refunds)

  • Renters’ possessions (unless they hold significant, resale-ready value)

  • Employer benefits (unless vested and withdrawable)

  • Sentimental items with no clear market value

A Gentle Reminder

Your net worth is a tool—not a judgment. It’s not a measure of your worth as a person, nor is it static. Life stages, career changes, market shifts, and financial goals all shape this number over time.

Regularly revisiting your net worth—say, once or twice a year—can give you helpful insight and keep your goals aligned with your current reality. And when you do it with clarity and calm, it becomes an empowering step on your journey toward financial wellness.

Leave a Comment