What Does Net Worth Mean? | Plus: How to Calculate It

What does net worth mean? In this article, we’re answering the question and giving you context to why net worth is an important financial valuation.

You will also learn how to calculate net worth and receive answers to the common questions that we receive from our members on this topic.

This article is part of our free series on banking, estate planning, and the legal documents that surround them, including a free detailed guide to opening a private bank account for yourself and your family members.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

1. What Does Net Worth Mean?
2. How Do I Calculate My Net Worth?
3. Frequently Asked Questions
4. Do You Want Help Opening Bank Accounts?

What Does Net Worth Mean?

Net worth is a financial valuation in personal finance that calculates the difference between an individual’s assets and liabilities. The net worth formula includes a person’s total assets, debts, and obligations.

Not surprisingly, the net worth calculation is commonly used in wealth management. Banks and financial advisors use this form of wealth assessment when evaluating the financial worth of prospective clients.

While this approach to monetary value may seem shallow, it’s an important consideration for banks in understanding the wealth objectives, starting point, and financial capabilities of individuals that want to become clients of the bank.

Of course, net worth can include a wide range of financial assets. This includes both liquid assets and illiquid assets, public and private companies, real estate and collectibles, and much more.

On the other end of the equation, debts and obligations can include a wide range of financing arrangements, from mortgages to lines of credit and credit cards to car loans.

With this in mind, if you are looking to calculate your net worth, it’s important to first have an accurate accounting of your total assets as well as your total debts and obligations.

How Do I Calculate My Net Worth?

To calculate your net worth, you first need two very important numbers, which are your total assets and your total liabilities. In this section, we will share how to calculate both of these numbers, followed by how to calculate your personal worth.

How to Calculate Your Total Assets

To calculate total assets, you first need to identify all of your personally held assets. These can include both tangible and intangible assets. Depending on the complexities of your personal financial situation, you may have more or less assets to calculate.

1. Physical cash
2. Money in bank accounts
3. Property (real estate) value
4. Vehicle value
5. Equipment value
6. Other physical assets
7. Securities (stock, bonds, etfs)
8. Intangible assets (patents, trademarks, copyrights, IP)

After you identify all of your personal assets you need to calculate a current value for each. Then you can total the current value of all assets in order to arrive at your total assets value.

How to Calculate Your Total Liabilities

To calculate total liabilities, you first need to identify all of your personal liabilities. These can include both short-term and long-term assets. Depending on the complexities of your personal financial situation, you may have more or less liabilities to calculate.

1. Credit card balances
2. Short-term loans
3. Outstanding bills
4. Short-term debts
5. Mortgages
6. Long-term loans
7. Other financing arrangements

After you identify all of your personal liabilities you need to calculate the outstanding balance for each. Then you can total the current outstanding balance of all liabilities in order to arrive at your total liabilities value.

How to Calculate Your Net Worth

Now that you have the value of your total assets and total liabilities, you can proceed with calculating your total personal net worth, which uses the following formula:

Net Worth = Total Assets – Total Liabilities

Is It Possible to Have a Negative Net Worth in Personal Finance?

Yes, it is possible to have a negative net worth in personal finance. In fact, it is common for individuals who are just starting out in their professional lives to have a negative net worth. This is especially true if they have outstanding loans for education, a mortgage on a home, and have only recently started saving and investing towards retirement.

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Frequently Asked Questions

Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.

What Does Your Net Worth Actually Mean?

Net worth refers to the difference between a person’s total assets and total liabilities. This number can be positive or negative, depending on the person’s financial situation. Importantly, net worth requires the person calculating to total the current value of all assets and then subtract the current outstanding balance of all liabilities.

Is Net Worth the Same as Actual Money?

Net worth does not necessarily mean money, instead, it means the total current value of a person’s assets after subtracting the person’s total outstanding balance of all debts and liabilities. It’s important to note that assets include both tangible assets like cash and bank accounts but it can also include intangible assets like stocks, bonds, and other assets that are not representative of a current cash balance.

Does Net Worth Mean Rich?

Net worth does not mean rich. Instead, net worth simply means the difference between a person’s assets and liabilities. In fact, net worth can even be negative, which means a person owes more to creditors than they own in terms of assets.

What Is a Negative Net Worth?

A negative net worth refers to a negative balance when comparing the assets and liabilities of a particular person. In other words, a person with a negative worth has more debt and liabilities than they do assets.

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