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How to calculate net worth

Sep 21, 2021
Empower Insights

The simple equation that can help measure your financial wellness

You may have read about your favorite celebrity’s net worth, but do you know your own? While 73% of Americans think their net worth is a top indicator of financial health, 34% don’t actually know their net worth according to our recent financial wellness survey.

Your net worth is a good thing to know because it gives you a big-picture view of your financial health at any given time, and it’s an effective way to see if your finances are on track toward your goals. It can also help you identify where you may be overspending — and how to make better use of your money.

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Net worth is the sum of your assets minus your liabilities. Simply put, it’s everything you own minus everything you owe.

Assets and liabilities

To calculate your net worth, gather your financial statements and add up all your assets. You may be wondering, “What are assets?” Assets are everything you own, and the most common types of assets are:

  • Physical cash.
  • Cash and investments in your checking, savings and retirement accounts.
  • Any equity you have in real estate or your car.
  • Anything else you can sell for cash.

Next, total your liabilities. A liability is money you owe an entity or even another person. Example of liabilities are:

  • Credit card balances.
  • Student, auto and personal loans.
  • Outstanding mortgages.

To calculate your net worth, subtract your liabilities from your assets. Note that it’s possible for your net worth to be a negative number. This outcome is possible for several reasons, including if you have significant credit card debt or have limited savings and spend most of what you make.

How to build net worth

You can increase your net worth by reducing your debts, increasing your assets or doing a combination of both.

Keep in mind that the types of assets you have significantly impact your bottom line. For example, a car you own is technically an asset. However, it loses value each year, so it ultimately doesn’t have a major impact on your net worth. In comparison, a house typically gains equity year over year, which helps improve your net worth.

Here are more ways to improve your overall net worth:

  • Reduce your discretionary expenses as much as possible. Cutting back on non-essential expenses like food delivery services or unused subscriptions can help build your cash.
  • Use the cash you’ve freed up to pay off credit card, student loan and other debts.
  • Find new sources of income. Consider selling items you no longer use, getting a second job or building skills to advance in your career.
  • Maximize your retirement savings. Contribute at least enough to qualify for any employer match — and more if you can.

If you’re ready to take a look at your financial picture, start with a free net worth tool. Linking your accounts and getting a high-level view of your finances allow you to identify any roadblocks in your way. Then you can work to build your net worth and improve your overall financial well-being.

 

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*Personal Capital is an affiliate of Empower Retirement. This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice.

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