Calculating your net worth is a great way to measure your personal wealth. Investopedia.com defines net worth as "the amount by which assets exceed liabilities", so you can tell that this is a really straight forward formula.

Despite the simplicity of calculating personal net worth, there are many ways to use this figure. For instance, your net worth statement can highlight if you are all hat and no cattle, or to put it explicitly, if you support your lavish lifestyle with heavy loans. Net worth can also indicate the balance needed to fund particular goals because it provides a snap shot of your financial situation.

Use a Top-Bottom or Side-by-Side Approach

The net worth worksheet can be prepared with the assets listed on top and the liabilities just under, or alternatively, you can list them side-by-side with the assets on the left and the liabilities on the right. Either way is perfectly acceptable.

Write Down All Your Assets

The first step to calculating your net worth is to make a list of all your assets. Assets can be broken down into two main categories; fixed assets and current assets. Fixed assets are tangible long-term assets which are more difficult to turn into cash such as; real estate, vehicles and jewelry. Current assets are easier to convert into cash and they may include; investments in bonds, stocks, money market accounts and savings accounts. List everything that adds financial value to your portfolio in this space.

Write Down All Your Liabilities

Next, you should make a list of your liabilities in the space provided. These too can be broken down into long-term like mortgages and vehicle loans and shorter term debt such as credit card bills and outstanding taxes.

Find the Difference

The easiest part of calculating your net worth is actually doing the subtracting. You should total your asset column and likewise total your liabilities column and then subtract your liabilities from your assets.

Be Weary of Valuation Methods

You should be cautious when allocating a value to your assets. It can be tempting to inflate the figure used because of either emotional attachment to the asset or genuine ignorance on how much the asset is depreciated. All assets should be listed based on current market values to give a true and fair view of their worth and avoid throwing off your resulting net worth figure. For instance, if you bought a vehicle two years ago for $15,000 you should not list it as the price you paid, but rather attempt to estimate a figure for depreciation and come up with what the car could realistically be sold for today.

This calculation can be done easily on a notepad or you can use an Excel Spreadsheet to make the calculations automatic and then have something you can revisit periodically to make adjustments and measure performance.

Calculating your personal net worth can be an eye-opening experience, but it is one that is truly beneficial in the long-run.

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