Understanding net worth

Monopoly Net Worth
KJ: Part of understanding your personal finances is to understand if you are spending more than you are making. The first most telling sign that there is a problem is if your “net worth” continues to decline. To me, the net worth figure is an entertaining number to watch grow over time – yes, I’m definitely a personal finance geek! Well, what is “net worth” and how do you measure it? Let’s start with an overview before we get any further:

Your net worth is basically a calculation that is:

The value of all of your assets:

    anything that you own – your car, your home, your 401(k) or other retirement value, savings values, checking accounts, brokerage and investment account, annuities, stock options, personal belongings, ownership of a business, etc.

The value of your liabilities:

    anything that you owe – loan on a home, car, line of credit, credit cards, student loans, your proportion of a business liability, etc.

As you can see, the assets and liabilities can take many forms, and the goal is to continue to increase the “net” number to the side of having more assets than liabilities. If your house increases in value and you continue to pay down your mortgage over time, then this is one such example of how your net worth can naturally increase over time.

All “net” numbers are not created equally
Someone who builds up their net worth via cash, savings, or investment accounts is likely to have a much different picture than the previous example where a person built up their net worth in their home. With a savings account, it’s much more flexible how you can access that net worth and utilize it to help fund your goals (a la children’s education or retirement). With a house, your ability to access the equity may be a bit more limited. So, keep this in mind as you build your “buckets” of net worth with cash, savings, house(s), and retirement.

View in a different light
Try breaking out your different categories based on ownership (his, hers, ours), goal categories (children’s education, retirement, vacation), liquidity (cash, bonds, stocks, home, private investments). Find the analysis that best fits what you need to see each time you review your finances in whole.

Leverage the use of technology
Programs like Mint.com, Quicken, and Yodlee.com are examples of software that can help you keep up with this regularly, or you can always use the spreadsheet method (my preferred method). Depending on who you speak with and what you’re looking to do, you may hear the term “balance sheet” as well that has a very similar function. For us personally, we review our balance sheet/net worth statement in our quarterly presentations – yes, you read that correctly…I prepare a quarterly presentation for us 🙂 – to make sure we’re trending positively. The format we enjoy shows the history of prior quarters in separate columns, so we can see the trend over several quarters and years. Some quarters (as may potentially be true for entire years), with house, car, and stock market fluctuations, you can see your net worth contract despite making progress on saving toward the accounts or paying down your home. Such is the reality of investing, and the sooner you recognize that all these values fluctuate and that you’re focusing on the long-term (i.e. 5, 10, 15, 20+ years), short-term declines can be but a blip on the radar.
With the average net worth of an American being $70,000, how do you compare?

Go ahead and try a spreadsheet on for size to see where you fall. See the link below for a sample Excel file where you can begin to create your own net worth statement. Choose from two options: a report where you view a snapshot at one point in time or a report that shows a trend over time if that is more your speed.

Net Worth Spreadsheet – build your own!

Net Worth Snapshot
Net Worth Over Time

    Do you track your net worth? Why or why not?
    Does the bank require you to submit a personal net worth statement to support a debt?
    Tell us if you feel your net worth is healthy or not.

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3 thoughts on “Understanding net worth

  1. The average net worth of an American is only $70,000?! That’s shocking! I like to track mine every month or two. I’ve been unemployed for a while now so my savings have been slowly dwindling, but my investments have been performing well enough to allow my net worth to continue rising.

    • That’s a tough struggle! At least you have been able to keep the net number increasing despite the struggles. Another example of how net worth often ebbs and flows over time as we make career changes (forced or elective), experience life transitions, etc.

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