Calculating Your Net Worth
Ever wondered what your net worth is? It might sound like a big, complicated number, but don’t worry—figuring it out is easier than you think! In fact, understanding your net worth is one of the best ways to get a clear picture of your financial health. Plus, knowing your net worth can help you make smarter decisions about saving, investing, and spending.
In this guide, we’ll walk through everything you need to know about net worth, from what it is to how to calculate it step-by-step. And don’t worry—we’ll keep the math simple and the advice practical. Let’s get started!
We even have a free spreadsheet link at the end of the article to do the math for you!
What is Net Worth, and Why Should You Care?
Before we dive into calculations, let’s get clear on what net worth actually means. Net worth is the difference between what you own (your assets) and what you owe (your liabilities). Think of it like a financial snapshot of where you are right now. If your net worth is positive, that means you own more than you owe—a good sign! If it’s negative, that’s okay too; understanding it is the first step to improving it.
- Assets:
Things you own that have value—like a car, house, savings, investments, and even your favourite collectibles!
- Liabilities:
Debts you owe—such as mortgages, student loans, credit card balances, and personal loans.
Knowing your net worth can help you:
- See the big picture of your finances
- Set financial goals with more clarity
- Track your progress over time
- Identify areas where you can improve
Step 1: List Your Assets
Start by listing everything you own that has value. This part can be fun because you get to see all the things you’ve worked hard for!
Common Types of Assets
- Cash:
Your savings account balance, cash savings in excess of normal expenditures, and any emergency funds
- Investments:
Stocks, bonds, mutual funds, cash, savings accounts, and retirement accounts like RRSPs and TFSAs
- Property: The market value of your home, car, and other valuable possessions
- Other Assets:
High-value items like jewellery, art, and collectibles (if they can be sold for a fair amount)
Example
Let’s say Emma and John, our practical couple, want to calculate their assets. They have:
- Bank account: $5,000
- RRSPs: $25,000
- Car: $8,000 (current market value)
- Home: $300,000 (market value)
Total Assets = $338,000
Go through your assets and jot them down. Once you’ve listed everything, add up the total.
Step 2: List Your Liabilities
Next, it’s time to look at what you owe. These are your liabilities, and knowing them helps you see exactly how much debt you’re carrying.
Common Types of Liabilities
- Mortgage: The balance on your home loan
- Car Loan: What’s left to pay on any vehicle loans
- Student Loans: Any remaining balances from your education
- Credit Card Debt: Any outstanding balances on your credit cards
- Other Debts: Personal loans or lines of credit
Example
Let’s go back to Emma and John. They owe:
- Mortgage: $200,000
- Car loan: $3,000
- Credit card balance: $2,000
Total Liabilities = $205,000
Step 3: Calculate Your Net Worth
Now, it’s time for the big moment! To calculate your net worth, subtract your total liabilities from your total assets:
Net Worth = Total Assets – Total Liabilities
Using Emma and John’s example:
- Total Assets: $338,000
- Total Liabilities: $205,000
Net Worth = $338,000 – $205,000 = $133,000
So, Emma and John have a net worth of $133,000. Not bad at all!
Tracking Your Net Worth Over Time
Calculating your net worth once is useful, but doing it regularly (say, every year) is even better. Tracking your net worth helps you see if you’re moving closer to your financial goals or if you need to make adjustments.
- If your net worth is increasing, it means you’re likely spending less than you’re earning and growing your wealth.
- If it’s decreasing, it might be time to look at your spending, debt levels, or savings habits.
What to Do if Your Net Worth is Negative
Don’t worry if your net worth is negative—this is common, especially when you’re just starting out or if you’ve recently taken on big debts like a mortgage or student loan. The important thing is to make a plan to improve your net worth over time.
Steps to Improve Your Net Worth
- Pay Down Debt:
Focus on reducing high-interest debt, like credit cards, first. Read our article on Strategies for Paying Off Debt Efficiently.
- Increase Savings:
Start small with automatic transfers to a savings account.
- Invest Wisely:
Consider putting money into investments that grow, like RRSPs or TFSAs.
- Cut Unnecessary Expenses:
Every dollar you save is a dollar added to your net worth.
Emma and John’s Story: Sensible Savers
Emma and John, a practical couple, keep a close eye on their finances. They track their net worth yearly and celebrate each small step toward their goals. They cut back on unnecessary expenses, pay extra on their mortgage when they can, and invest in RRSPs to grow their future savings. Their sensible habits have helped them gradually increase their net worth over time.
Sarah and Mike’s Story: Learning to Separate Wants from Needs
Sarah and Mike have had some struggles with their finances. They used to think of their net worth as “something for the future” and spent on things that seemed important in the moment. But after calculating their net worth and seeing how their debts added up, they realized it was time to make a change. They started small by identifying wants versus needs and cutting back on dining out. Slowly but surely, they’re on their way to improving their net worth.
Common Mistakes to Avoid When Calculating Your Net Worth
- Overvaluing Assets:
Be realistic with estimates. A car’s worth decreases over time, so use the current market value. A good evaluation can be had on autotrader.
- Ignoring Debts:
Include all debts, even if they feel “small.” Every debt impacts your net worth.
- Not Updating Regularly:
Your net worth changes as your assets and debts change. Revisit it regularly to stay on track.
Building Your Net Worth: Simple Tips
- Set a Budget:
A budget helps you spend less than you earn and save the difference.
- Automate Savings:
Have a portion of your paycheque go straight to savings or investments like a TFSA.
- Invest Wisely:
Consider low-cost options like index funds, RRSPs, or TFSAs, which can help your money grow tax-free.
- Avoid Lifestyle Inflation:
As you earn more, resist the urge to spend more. Stick to your savings goals instead.
Final Thoughts: The Value of Knowing Your Net Worth
Your net worth might seem like just a number, but it’s actually a powerful tool. Knowing your net worth helps you make better financial decisions and sets you on a path to financial freedom. So take a few minutes, gather up those assets and liabilities, and do the calculation. And remember, whether you’re like Emma and John or just getting started like Sarah and Mike, every small step you take today helps build a stronger financial future. Happy calculating!
As promised here is the Net Worth Calculator, and other useful Free Planning Materials.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.
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