There are so many ways to keep track of net worth, and there’s no one “right” way to do it. I find that a quick back-of-the-envelope calculation works for me.
One of my first data points I have is from January 2007, when I had a -$4,300 net worth. As of December 2009, my net worth is around $51,000. So I’ve have increased my net worth by roughly $55,000 in 3 years, or around $18,000 per year. I’m proud of what I’ve done, but if I get the position that I’m hoping for I promise to do better. (Just in case the Universe is listening!)
(By the way, this is the first time I’ve updated my net worth since 2007. Oops. What kind of a personal finance blogger am I?! With this super simple calculation, I should be better about that going forward.)
I don’t include the book value of my elderly Honda or my personal possessions because (1) they are not worth that much and (2) excluding non-investment assets gives me a more realistic view of my net worth. I’d rather see that I have a $10,000 net worth with only my investments rather than a $12,000 net worth that includes my car and personal belongings.
Currently, I don’t own a home. If I did, I would likely put the home equity value (market value less book value of mortgage debt) in Assets and reevaluate that value once or twice a year for simplicity’s sake.
So here’s how I calculate my net worth:
Assets:
- Bank Checking & Savings Accounts + Money Market Fund = Total Cash
- Equities + Fixed Income = Total Retirement Investment
- Cash + Retirement Investment = Total Assets
Liabilities:
- Credit Card Balance* + Student Loan Balance = Total Liabilities
Net Worth:
- Total Assets – Total Liabilities = Net Worth
*I pay off my credit card bill every month but the bill is due in the middle of the month, not at month-end. I calculate net worth at month-end, so whatever balance I have accumulated up to that point should be reflected in the net worth.
How do you calculate your net worth? Does it differ from the approach I use?
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