Net Worth Formula Definition

To calculate my Personal Net Worth, I substitute the information below in my Net Worth Formula.  The basic formula for Net Worth is:  ASSETS minus LIABILITIES.  It is defined as Everything you OWN, minus Everything you OWE.

ASSETS

Step 1 of the Net Worth Formula is to define the value of all financial accounts, and everything else you own. I usually use conservative estimates of value for assets when the value is not quick or easy to determine. This helps to ensure a realistic final value for Net Worth. For example, for a primary residence (house, townhouse, condo, etc) begin with the estimated value (assessed value, appraisal, whatever you think is realistic). Then deduct 6% for realtor commission when you need to sell, and then deduct another 10% to be conservative. So a house worth $100,000 would be valued as follows:

100,000 – 6,000 (6%) – 10,000 (10%) = 84,000 estimated value of this asset

Here is a checklist of assets you can use:

• Interest-earning assets held at financial institutions
• Passbook savings account
• Money market deposit accounts
• Certificate of deposit
• Interest-earning checking accounts
• Other interest-earning assets
• U.S. Government securities
• Municipal or corporate bonds
• Stocks and mutual fund shares
• Rental property
• Mortgages held for sale of real estate
• Amount due from sale of business or property
• Regular checking accounts
• U.S. savings bonds
• Home ownership
• Vacation homes and other real estate
• IRA and Keogh accounts
• 401K and thrift savings plans
• Motor vehicles
• Other financial assets

LIABILITIES

Step 2 of the Net Worth Formula is to define all of your liabilities. This category includes mortgages, car loans, student loans, credit cards, and home equity loans.

Here is a checklist of liabilities you can use:

Secured liabilities

• Margin and broker accounts
• Mortgages on own home
• Mortgages on rental property
• Mortgages on other homes or real estate
• Home equity loans
• Debt on business or profession
• Vehicle loans

Unsecured liabilities

• Credit card and store bills
• Doctor, dentist, hospital, and nursing home bills
• Loans from individuals
• Loans from financial institutions
• Educational loans
• Other unsecured liabilities

NET WORTH

Step 3 of the Net Worth Formula is to perform the final calculation:  ASSETS minus LIABILITIES. The result equals NET WORTH.

Now you have defined your own Personal Net Worth!