One of the jargon phrases that often gets thrown around in the personal finance world is net worth. Sometimes it’s not mentioned explicitly but when someone says the word “millionaire” or “billionaire,” they are referring to someone’s net worth.
First and foremost - a friendly reminder - our net worth has absolutely nothing to do with our self-worth. It might sound silly to even mention this but money and our self-worth are something we often collapse into one. This is one of the reasons it’s difficult to talk about money. When we share how much we earn or how much we have, we may think that defines how valuable we are as people. As long as we acknowledge that it’s completely separate, it takes a lot of power away from the number. If the term self-worth carries too much weight for you, feel free to rename it. You can call it my “numbers,” “totals,” or even something even more fun like my “treasure.”
So how do we calculate our net worth? It’s actually a very simple equation - it’s a total of what we own minus a total of what we owe. I’ve put together a Net Worth Tracker to make it as easy as possible for you to calculate your net worth and keep track of it going forward. You can also create your own spreadsheet or just write it down - whatever is easiest for you.
Add up what you own.
First, we list out all the things we own (also called assets). This can include various bank accounts, investment accounts, real estate, and even personal valuables. Here are some examples of the things we may own:
Bank account balances
The value of your investments accounts
The market value of your home
Personal property like jewelry, art, wine and furniture
Anything else you could sell that has value
Then add them all up. This is your total assets.
Add up what you owe.
Then we list out all the things we owe (also called liabilities). This can include credit card balances, student loans, our mortgage, or even a loan to a family member. Here are some examples of things we may owe:
Credit card balances
Money you owe to a family member
Then add them all up. This is your total liabilities.
Subtract what we owe from what we own.
We can then subtract the total we own minus the total we owe and that gives us our current net worth.
What’s the point?
One of the reasons tracking our net worth is helpful is because it’s motivating to see our progress. It also keeps us honest because it gives us the full picture. With our financial lives getting more and more complicated, it’s easier and easier to lose sight of our broader financial picture. I might see my bank balances increasing and think that I’m making headway towards my goals, only to find that my credit card balances are also increasing.
Keeping track of our net worth gives us a comprehensive list of what we have and where. It’s a great financial snapshot and helps us see past ebbs and flows in the different parts.
Track your progress.
In the Net Worth Tracker spreadsheet you start by calculating your current net worth, but there’s space to update the numbers and track your progress over time. I like to update mine every three months (once per quarter) and see what the trend looks like.
Watch out for investments.
When we’re tracking our net worth each quarter (or however often you want to do it), it’s important to remember that the values of your investments will go up and down. You may have saved a lot of money over the last few months but if your investments are down, your total may not increase. I like to do a separate tally that just tracks how much I added or subtracted from my savings and investments, without accounting for movements in investments. Both numbers are helpful!