Do you ever hear the people talking about net worth and ask yourself what that means and why is it important to track? The dictionary defines net worth as “the total wealth of an individual, company, or household, taking account of all financial assets and liabilities.” 

Most people will agree that the definition of net worth is simply: assets – liabilities = net worth. 

Now that we know what it is, why is it important to track? Net worth gives you the opportunity to see where you are financially at any point and whether your wealth is going up or going down. Please know that it is very possible to have a negative net worth. This means that you owe more money than what your assets are worth. We’ll talk a little more about this later. 

Now let’s look at how you can figure yours out. Take out a piece of paper and a pen or pencil. Draw a line straight down the middle.  On one side you are going to write the word assets and on the other write the word liabilities. 

On the assets side, make a list of valuable items that you own. Think of bank accounts, investment accounts like 401(k)s, any real estate property that you own, personal property such as cars or any other items that have value. Next to these items, write down their approximate value. On the liabilities side of your sheet, make a list of your liabilities. Liabilities are the debts that you owe. Next to each one, write the balance. 

Here is an example of what this may look like (we’ll use easy round numbers for simple math):  

ASSETS		LIABILITIES
Bank Accounts	$     5,000	Mortgage	$210,000
Personal Home (Equity)*	$300,000	Credit Card Debt	$    5,000
401(K) or Other Retirement	$ 50,000	Auto Loan	$ 10,000
Car (Equity)*	$ 20,000	Home Equity	$ 40,000
Total Assets	$375,000	Total Liabilities	$265,000

*To determine equity, subtract the amount owed from its value. For example, if your car loan balance is $8,000, and your car is worth $10,000 if you sold it, you have $2,000 in equity.  

Now we have the numbers we need to calculate net worth. Remember: net worth = assets – liabilities.  

So, in the example above, the assets are $375,000 and the liabilities are $265,000. We then subtract the liabilities from the assets for a total net worth of $110,000. 

Let’s say you calculated yours and you didn’t like what you got—maybe you got a negative number. Do not get discouraged. Many families and individuals are right there with you. According to Market Watch, 1 in 5 Americans have a zero or negative net worth. Instead of dwelling on it, get motivated to get that number into the positive. You got this!