Tuesday, March 11, 2008

Net Worth - You Need to Know This Even If You Think It's Boring

The first time I calculated our net worth was back in our spending days, when we thought we were doing well. But the figure I came up with about the same as the number of fingers I have, so I didn’t do it again. “It’s bogus to know your net worth,” I thought to myself. “There’s no way my net worth can be $7!”

Ok, so maybe it wasn’t $7 but it was something equally as awful, like maybe $12.

I know that calculating your net worth may seem like a boring thing to do, but seriously – you need to do it. It’s not hard. All you need is a spreadsheet. Or if you must, a pencil and paper.


First, list all of the things of you own, along with the value. Include all assets such as cash, bank account balances, retirement funds, 401K, real estate, cars, home furnishings, antiques, and so on. For pension plans, only calculate the amount you are fully vested in.

What does vested mean? Some companies require you to wait a certain time period before you are eligible for the full percentage of the contribution put into your retirement account by the company.

For all values, make sure to use the fair market value, which is “the price a willing, rational, and knowledgeable buyer would pay” for the item. For cars, use the blue book value.

Now, total all of that up.

These are your ASSETS.


This is the sucky part of the equation – figuring up how much you owe. Include all loans, mortgages, student loans, credit card balances, unpaid taxes. Don’t say “that one doesn’t count," because they all count.

Total up those amounts.

These are your LIABILITIES.


This is the easiest step, but may be the most painful.

Assets – Liabilities = Net Worth

What is this amount supposed to be? Multiply your annual income times your age and divide by ten. This number should be equal to or higher than your net worth, according to The Millionaire Next Door. Where do you fall?