Ever wondered how to calculate net worth? When my hubs and I first calculated our net worth it was right after we made the decision to go debt-free. Seeing how much more net worth we could have by not having debt, really propelled us down this debt-freedom road.
Because I know some folks prefer a worksheet they can print off, you can download the editable .pdf document here that literally contains the same information as this post. 🙂
Here’s how you calculate your net worth:
The greater your net worth, the bigger your safety net will be in case you lose your job or have an emergency. Think of this as your money snapshot and use it to help you manage your money better.
Step One:
Calculate Your Net Worth
Assets | Liabilities | |
| Checking Accounts | Credit Card Debt | |
| Savings Accounts | Mortgage Loans | |
| IRA’s | Student Loans | |
| Stocks & Bonds | Car Loans | |
| Car(s) | Other Debt | |
| House | Total Liabilities: | |
| Other (Land or Rental Property) | ||
| Total Assets: | ||
Net Worth (Assets – Liabilities) | ||
Got a net worth that is a negative number?
Start paying down your debt. I prefer the debt snowball method that is favorited by Dave Ramsey in The Total Money Makeover*, but use whatever method makes paying off your debt easier. Usually credit cards are the easier debt to work on first as they usually have a lower balance than your car, student, or home loans. Pick the debt with the smallest balance and create a plan to pay off that debt first and then slowly working your way up to the larger debts.
Got a net worth that is a positive number?
You are in a good place but make sure that you are growing that net worth over time and that you avoid sinking into debt. (I’m a huge fan of being 100% debt-free and I believe being debt-free is the only way to live, but I understand that this is not the choice of everyone. Just make sure that you are keeping your net worth a high positive number – you’ll be better off come retirement or when an emergency pops up.)
Things to make sure you keep your long-term investments happy:
Emergency Fund – this is strictly for emergencies only like losing your job or a serious health issue. This is not for a new washing machine.
Budget – yes, you need to have a budget. You need to know where and how your money is being spent every month. Make your money work for you, not the other way around. (If you need help figuring out how to create a budget, my book Build a Budget that Works will give you all the practical steps to developing a budget.)
Repeat this Calculation – make a commitment to repeating this calculation every year. It will help you see how you are doing overall and help to keep your net worth high.
Step Two:
Calculate Your Savings
| Figure out your after-tax income (take-home pay). You can calculate this number by adding up your actual paychecks or go to http://www.calculator.net/take-home-pay-calculator.html to calculate your after-tax income. | Find your yearly expenses by adding up everything you spent money on this year. Then subtract the total from your income to determine how much you are saving: | |||
| Credit Card Bills | ||||
| Checks Written | ||||
| Cash Withdrawn | ||||
| After Tax Income | = Expenses | SAVINGS | ||
| – | = |
The figure you end up with in the “SAVINGS” box should be at least 20% of your after tax income. Anything below 10% is a red flag unless the amount is lower due to contributing before tax dollars towards a 401(k) or other company savings plan.
What to do if you are not saving enough…
Use the 50/20/30 budget method (you can read more details about it here) – 50% for essentials like food and housing, 20% for savings and 30% for lifestyle/wants.
Automate your savings – set up with your bank an automatic savings withdraw. You can start with 5% of your after-tax income and gradually increase that amount as you learn to budget your money. I prefer to keep our emergency fund at another bank that is not our regular bank. (We use Capital One 360* for our emergency fund.)
What to do if you are saving enough…
Make sure you have an emergency fund – even if you are saving 20% of your after tax income make sure that a portion of that is allocated towards an emergency fund. An emergency fund is in case you lose your job or for significant medical expenses. Having an account designated strictly for emergencies is a blessing for your family.
Max out your retirement contributions – if your company has a 401(k) and matches your contribution, make sure you are taking advantage of the max contribution. This will help to increase your retirement without increasing the amount being withheld from your paycheck.
Linked Up To: The Thrifty Couple
JOIN THE CHALLENGE!
Money controlling you? I know the feeling. My family has been living this real life on a budget for a long time and I can tell you that there's never a perfect season, but with a few changes you can start to reign in your money issues.
Join the 5-Day Challenge today and start getting your money life in order this week!
Thank you for this reminder. I had an idea in my head of what my net worth was, but it’s good to have it in concrete numbers. I also calculated what my net worth was 6 months ago and a year ago (thank you, online statements). My net worth is down $3K from last year, but since I was out of work for 4 months, that’s not bad. It’s only going up from here!
Heck yes Ronnica! You’re rocking it! 🙂
Keeping track of our net worth was a huge thing for us. It sort of took the whole monotony of monthly budgeting and gave us a big picture. I agree that automating the aspects of finance that can be automated is also a huge help. We started saving a whole lot more towards paying off our mortgage when we had weekly amounts automatically pulled out of my husband’s paycheck and into another account.
We use the snowball method by Dave Ramsey, too. Your net worth is certainly is a good thing to know.
I was really digging the calculations and feeling good about our financial position until I added in the student loans. Some day we will be rid of them, until then we will just have to grin and bear it!
I have a positive net worth, but i definitely need to be growing what I have for the future. That’s my weak spot.
That’s a good thing to know. I’m actually going to use the download to teach it to my daughter. It’s so important to show our kids the right way to handle money.
Thank you so much for sharing this. I want to calculate our net worth soon, even though I know it is going to be a negative number. I want a starting point so I can track our progress from here on out. I’m on a big journey of debt payoff that includes Dave’s snowball 🙂