How to Calculate Your Net Worth (Plus, Why It Matters That You Know)

Net worth is a term that gets tossed around, often in regard to celebs. (As in, the phrase you Google as you binge Live with Kelly and Ryan, wondering what Kelly Ripa’s total assets amount to…or is that just us?) But how do you calculate your net worth—and more importantly, why is it a number you want to have at the ready? We asked Michelle Brownstein, a certified financial planner and vice president of private client services for Personal Capital, to explain.

It’s basically a bird’s-eye view of your entire financial picture, Brownstein explains. The problem is that a lot of people have no idea how to calculate it and, often, if they do, they don’t consider their debts as part of their overall financial makeup. (For example, a recent survey by Personal Capital found that only 35 percent of U.S. adults feel a mortgage should be factored into a person’s net worth, even though 59 percent said they’d include home equity, according to Brownstein.)

The biggest reason to know your net worth is that it can help you create a plan for debt management (i.e. you may have a heavily padded emergency savings, but be in the hole hundreds of thousands of dollars on student loans—). Your net worth will help you see the reality of where you stand.

To calculate your net worth, you simply add up everything you own (your assets) and then subtract everything you owe (your liabilities). Assets that should be included range from the cash in your checking and savings accounts to any investments (like your 401k or any brokerage accounts) to your house, your car, personal property like jewelry—again, it’s anything you own. As for your liabilities? Those are things like your car loan, student loans, your mortgage, credit card debts—anything you still owe money on. (Oh, and regarding that mortgage reference earlier—if you owe $200,000 on your house, but its market value is $300,000, that’s $100K toward your net worth.)

As a rule of thumb, it’s enough to calculate your net worth annually, but you should always redo the figure after any major financial move (like buying a new home or selling your car). Your best bet is to use an online net worth calculator, which allows you to track all of your accounts in one place, or you could work with a financial planner, depending on the range of assets that need to be factored in. (This will help you factor in annual asset and liability growth rates, too.) Keep in mind, there’s always the possibility that you could find out you have a negative net worth after running the numbers.  

Per Brownstein, keeping tabs will help you stay on track toward mid-term and long-term goals (say, things like retirement or or buying a second house). If you do find yourself with a negative net worth, it can help you prioritize ways to reduce your debts. But if you have a positive net worth, it can open up more big-picture financial opportunities. For example, maybe you’re in a prime position to invest more—or it could simply illuminate the fact that you should keep doing what you’re doing to stay on track with your money goals. 

Bottom line: Net worth is a good reminder that income matters—but it’s not a complete picture of a person’s true financial worth.