Don't Include These Things When Calculating Your Net Worth

Throughout history, becoming a high-net-worth individual has undoubtedly always been one of the most sought after statuses in society. For that reason, typically when people think of the word "net worth" today, they often associate it with individuals who have achieved a great degree of financial success. In fact, it may even be the case that the first time you stumbled upon the word as a child was when you were trying to figure out how much money your favorite celebrity was worth.

However, in reality, net worth is not something solely reserved for the wealthy and elite. The truth is, technically all adults have a net worth to some extent. By definition the word "net worth" is deemed as the total value of one's assets minus their liabilities. Assets are the things you own that have value like cash and investments, and liabilities are the things you own that take away from that value, like credit card debt or student loans. This being the case, all that it requires to figure out one's net worth is to add up all of your assets and then subtract your liabilities from that number. Now while this sounds like a pretty straightforward process at face value, in reality that isn't quite the case. That being said, let's take a look at how you can figure out your net worth, as well as the things you should and should not include when doing so.

The first thing you'll want to do when calculating your net worth is to figure out how many assets and liabilities you have. In laymens terms, an asset can be anything you own that has inherent monetary value. This could be a laptop you bought, your car, money in your bank account, investments you hold, and even rare collectibles like your old Yu-Gi-Oh! Cards. Once that's all of that sorted out, the next step is to account for any liabilities you may have. As briefly mentioned earlier, a liability is any type of money that you owe. This includes things like credit card debt, or any type of borrowed money like student loans or a mortgage.

In the case that your assets are greater than your liabilities, congratulations! You have what's called a positive net worth. On the other hand, in the unfortunate circumstance that your liabilities outweigh your assets, you have what's called a negative net worth. For that reason, you might want to think twice before discussing this financial information with your friends. However, even if you do find yourself with a negative net worth, the good news is that it can be reversed. You'll just have to repay your debts until your assets outweigh the liabilities. Even if that looks like it'll take a long time to do, don't worry. It'll all be worth it once your net worth flips positive and you're back in the green.

Realistically speaking, anything (and I mean literally anything) you personally own that has monetary value can be counted towards your net worth, just as any personal debt or money you owe can be counted against its value. Now objectively speaking, there are certain things like, per se, your vacuum cleaner, that for logistical reasons are probably unnecessary to count towards your net worth. The reason being that wandering around your house with a pen and paper accounting for the price of every single item you see would be an incredibly and irrationally tedious process. For that reason, the more significant assets in your possession should take precedence over others (checking and savings accounts, investment accounts, real estate, vehicles, etc.)

Now if you're genuinely invested in figuring out what your net worth is, the most effective approach would be to hire an accountant to help walk you through it. A trained professional will know all the specific details and metrics by which one appropriately can calculate their net worth. After all, there's only so much you can reliably account for by yourself, and if you don't know what you're doing, you're likely to miss out on some key things. However, if you have some free time on your hands and want to see how much you're worth just for kicks, one of the many online free net worth calculators are a great place to start.