Article: Before calculating net worth, it is important to know what it is, and its purpose. The easiest way to define net worth is that it is what you own, minus what you owe. Net worth is how much you would have left over if you were to take everything you own, sell it, and use the proceeds to pay off what you owe.  Your net worth gives you a good idea of your overall wealth and the health of your financial situation. For example, if you have plenty of debt, and own very little, your net worth would be negative, which means your financial situation may not be healthy. This is because if you own a $1,000 computer for example, but owe $20,000 in debt, if you subtract what you owe (the debt) from what you own (the computer), you still owe $19,000. Because you owe $19,000, your net worth would be -$19,000. On the other hand, if you own a home worth $100,000, a car worth $20,000, and have a $50,000 mortgage, your net worth would be a positive $70,000 (or $120,000 of assets minus your $50,000 mortgage liability). What you own is also known as your assets. This component of calculating net worth really is as simple — and possibly daunting — as making a dollar value estimate of everything you own, from the car you drive to the contents of your sock drawer.  Don’t worry yet about determining the amount you owe on things like your house or car; that work will come with your liabilities.  The focus now is on establishing the market value of your possessions. That is to say, how much your possessions would sell for if you were able to sell them today. Start your asset counting by making an outline with the following categories: Cash & Cash Equivalents. Investments Retirement Funds. Home. Home furnishings and valuables. Automobiles. Other. Cash is a type of asset. This includes the contents of your bank accounts (like checking, savings, or High Interest Savings Accounts), any physical cash you have on hand, or any cash in investment accounts.  Let’s say, for example, that you have $3,000 in your checking account and $17,000 in your savings account, for a grand total of $20,000 in cash (running total: $20,000). Be careful not to count the value of investments as cash. For example, if you have a Roth IRA account with a mutual fund worth $5,000 in it, do not count that mutual fund as cash, because it is an investment. Perhaps your parents bought you a policy as a kid, or you signed up for one yourself or through work.  If it is a whole life policy that builds cash value, then that cash value is part of your assets.  If you own a whole life insurance policy, there are two values linked to it — cash value and face value. When you pay premiums, part of the premium goes to paying the cost of insurance, and the remainder goes into a cash fund. The value of the cash fund is known as the cash value. The face value is the amount your family receives if you were to die (or the cost of the insurance). If you were to close the policy early, you would receive the cash value.  Count cash value — the amount you would receive if you closed out the policy — not the face value, as being an asset. The cash value of a whole life policy typically builds up slowly to the point where it equals the face value once you reach the end of the mortality table used to establish your policy (often at age 100). Whether you have a substantial portfolio or have just started investing, the current dollar value of such investments is another portion of your overall assets. Investments include things like stocks, bonds, mutual funds, or exchange traded funds.  Let’s imagine that you have $5,000 an investment account. This would give you a running total of $25,000 in assets. Note that running total simple means adding up everything we have so far, so $20,000 in cash plus $5,000 in investments equals $25,000 of total assets. As you are more than likely dealing with hypotheticals and not actually “cashing out” your assets, it is probably unnecessary to factor in any withdrawal penalties for removing funds from an investment account.  But it can’t hurt to be familiar with the details of any penalties you may face in the future. If you have a defined contribution account with your employer, like a 401(k) or 403(b), or an individual retirement plan like an IRA or Roth IRA, these count towards your assets. These are separate from investments, as they cannot be easily liquidated.  For example, imagine you have $15,000 in a 401(k) account with your employer. This bring your running asset total to $25,000 + $15,000, or $40,000. This is where things get a bit more speculative.  Instead of counting up funds, you have to make a best guess about the value of what is likely your most valuable possession — your home.  You need to establish the fair market value for your home — the amount you could expect to fetch for it if you put it on the market.  The most common way to do so is by finding the sale prices for comparable properties, which are those similar in location, size, age, condition, style, number of bedrooms/bathrooms, etc.  How to Determine Market Value for Your Home offers many ideas on identifying “comps” and establishing market value, including:  consulting newspapers, real estate websites, and local tax offices/websites; talking with a real estate agent; and having an appraiser do the estimating for you. For this exercise, we will say that your home is valued at $150,000 (running total:  $190,000). This is likely to involve even more speculating and estimating.  You will probably be surprised by the amount you get, as the average single renter in the U.S. usually has $20,000–$30,000 in such personal property. One of the best tips to estimate the value of things in your home is to search the item on Google.com or Kijiji.com to see what the used item is selling for on the market.  This is a useful exercise not only for determining your net worth, but also for figuring out how much renter’s or homeowner’s insurance you should carry.  Having a detailed list of your possessions — including photos, if possible — will also come in handy if you ever need to file a claim. For insurance purposes, you probably want to determine the replacement value for your things — what it would cost to actually replace them.  For your net worth, however, you simply want to establish the market value — what someone would pay for them as is.  For instance, you might be able to sell your five-year-old TV for $100, but replacing it with a comparable new one might cost $250. We’ll pretend your household possessions add up to $25,000, for a running total of $215,000. Be careful not to double-count anything. For example, you have already estimated the value of your home, therefore, you need to make sure that anything that was part of your home value is also not added to your list of valuables in your home. Generally speaking, if it is not staying in your home when you sell it, you can add it your list of valuables in your home. Again, this involves some guesswork, but thankfully there are numerous resources for establishing the market value for automobiles.  The traditional “blue book” for car valuations is now more easily utilized online, along with many competing car valuation and/or car-buying sites. You can also ask a car dealer for an estimate; if he or she has any inkling that you may want to buy a car, a dealer will likely be happy to do this for you. For our sample running total, let’s add $25,000 for your car to make it $240,000. Remember if you own it, it is an asset. You may have some debt on that asset (like a car you borrowed money to own for example), but that debt will be subtracted later on in the net worth calculation. Don't forget to include the value of any business you may own for example, or any additional property (like a cottage).
What is a summary of what this article is about?
Understand what net worth is. Assess what you own. Count up your cash. Include the cash value of any life insurance policies as cash. Include investments and retirement accounts. Total up retirement account balances. Determine your home’s value. Estimate the value of everything in your home. Consider your car’s value. Consider any other types of assets.