Net Worth Calculator

What Constitutes a Person's Net Worth?

Your financial standing is often mirrored in your personal balance sheet, serving as a snapshot of your current economic state. Essentially, net worth is the difference between what you own and what you owe. Popular culture has become fixated on the concept, frequently evaluating the fortunes of high-profile individuals and celebrities.

How is Net Worth Calculated?

While the formula for determining net worth is fairly simple, the crux lies in how assets and liabilities are assessed, as well as what is included within these categories. To compute your net worth, you sum the value of your assets and subtract the full amount of your outstanding debts.

ASSETS – LIABILITIES (DEBTS) = TOTAL NET WORTH

Varieties of Net Worth

Net worth can be calculated not only for individuals but also for entities like corporations, industries, or even governmental bodies such as cities, states, or countries. For businesses, net worth is often referred to as shareholder equity—essentially the remaining value that shareholders would hold after all liabilities are cleared. Much like households, businesses and governments calculate net worth to assess financial health, gauge when 

all liabilities and debts are settled. Companies, just like individuals, regularly calculate their net worth to assess their financial health, determine necessary actions for improvement, and monitor progress over time. A business with consistent profitability will likely see its net worth grow, often reflected in a rising stock price.

In the corporate world, a net worth statement may also be referred to as a balance sheet. The difference between a company's total assets and liabilities indicates its equity value. It’s crucial to highlight that these balance sheet figures don’t reflect current market prices, but rather historical costs or book values. Lenders scrutinise a company's net worth to evaluate financial stability—when liabilities surpass assets, it raises doubts about the borrower's ability to repay loans. A company with rising profitability will usually witness a growth in net worth, as long as the earnings are not fully distributed to shareholders as dividends. In public companies, a rising net worth often correlates with an increasing stock price.

Tangible vs Intangible Net Worth

Your actual net worth might be more complex than it appears. Some people possess what is called "intangible assets"—items that are difficult to sell but still hold value. While most assets are tangible (i.e., they have a physical form and can be easily traded), intangible assets include intellectual property (IP), trademarks, websites, patents, and other forms of intellectual capital that may lack a physical presence but are valuable nonetheless. Selling intangible assets often requires specialised knowledge. When calculating your tangible net worth, you might want to exclude intangible assets, as they are less liquid. It's important to note that your overall net worth will rarely match your tangible net worth due to the value of these intangible items.

Key Assets to Consider in Net Worth Calculation

When tallying up your assets, certain items should be carefully evaluated for their present-day value. These include:

1. Current Home Value: This should closely reflect the real market value of your house. If you've owned the property for a significant period, its market value could be substantially higher than when you bought it.

2. Additional Properties: Any other real estate holdings, such as investment properties, vacation homes, or commercial buildings, should be included at their current market value.

3. Vehicles: The market value of all vehicles you own outright, excluding any leased vehicles.

4. Valuable Items: Jewellery, precious metals like gold, and other collectables should be appraised based on their current market value. These items often appreciate in worth over time.

5. Furniture and Household Goods: Furniture, electronics, silverware, and other personal possessions also factor into your overall net worth, though their individual value may be relatively modest compared to other assets.

Average Net Worth by Age in the United States

In the U.S., net worth tends to increase with age. Older generations generally accumulate more wealth due to the time they've had to acquire assets and reduce liabilities. According to a report released by the U.S. Federal Reserve in September 2020, the average net worth of American households stood at $121,700. This figure nearly doubled for individuals aged 65 to 74. Between 2016 and 2019, median wealth rose by 18%, while mean net worth saw a modest increase of 2%. This growth followed a period of decline as people worked to rebuild their financial stability after the 2008 economic crisis.

Strategies to Grow Your Net Worth

Maintaining a budget is one of the most effective ways to manage your finances and identify areas where savings can be made. Accumulating debt, on the other hand, can erode your net worth. Keeping track of your expenditures and adhering to a budget helps in mitigating financial liabilities.

For renters, monthly rent payments do little to boost net worth, as they don’t contribute to asset building. Owning a home, if feasible, can be a significant way to build wealth over time as you accumulate equity. Additionally, if you have a positive cash flow and net worth, investing might be a prudent next step to grow your wealth.

Why Monitoring Your Net Worth Matters

A person's net worth is a key indicator of their overall financial health. It’s calculated by subtracting liabilities from assets and provides a snapshot of where you stand financially. Keeping an eye on your net worth over time helps you gauge your progress and make informed decisions about your future. Regardless of your current net worth, there are always steps you can take to improve it, whether through saving, investing, or reducing debt.

In essence, understanding and regularly assessing your net worth is a powerful tool in managing your financial future.