How to Calculate Net Worth

Dominique Jordan, Vice President, Wealth Manager, First Republic Private Wealth Management
May 19, 2022

  • Net worth is an overall measure of your wealth taking into account your liabilities, such as debt.
  • The net worth formula equals assets minus liabilities.
  • Tangible net worth and intangible net worth are different calculations applicable to different situations. Often, you will use intangible assets in your net worth calculation.

To help position yourself for financial success, you will want to know the term “net worth,” which gauges your overall financial wealth. A person’s net worth is the sum of all their assets, minus any liabilities or obligations. Net worth is all-encompassing: it considers assets, such as your bank account balances and real estate holdings, and it also includes all your debt, such as student loans, credit cards and mortgages.

Understanding how to calculate net worth using the net worth formula can help you gain a sense of where you stand financially — and how you can best position yourself to grow your wealth.

Net worth formula

Net Worth Formula
Net worth = Assets − Liabilities

A broad range of things can be considered assets and liabilities, all of which factor into how you will eventually calculate your own net worth. Assets, for instance, include both liquid and illiquid capital; liabilities encompass bills, loans and other outstanding debts.

Below, we’ll take you through a step-by-step breakdown of this formula. This should help you understand which of your financial holdings and obligations belong to which category, so you can calculate your net worth on your own and track it as your wealth situation changes. 

Step 1. Calculate your assets

To begin the process of calculating your net worth, you’ll need to find the sum of all your assets before first using the net worth formula.

In this case, “assets” can mean anything you own that has value. This wide-ranging category can include many different types of holdings.

Common asset examples:

  • Liquid cash in bank accounts
    • Checking accounts
    • Money market accounts
    • Savings accounts
  • Retirement plans
    • IRAs
    • 401(k)
    • Other retirement savings
  • Other investments
    • Stocks and equities
    • Fixed-income investments
    • Managed assets
    • Business interests
    • 529 accounts
  • The market value of real estate properties
  • The market value of vehicles
  • Other items with market value, such as art, jewelry or collections

What counts as assets will vary depending on what you personally hold. If you own something that has clear market value, you can add this into your net worth calculation when you run the formula.

Tangible vs. intangible assets

Assets are generally classified as either “tangible” or “intangible.” The common assets listed above are tangible assets, with a clear market value. Alternatively, intangible assets do not have a clear market value. These include holdings, such as trademarks, copyrights, or patents. 

Intangible assets are sometimes factored into net worth calculations, but not always.

Step 2. Calculate your liabilities

Once you know your total assets, the next step in calculating net worth is knowing your full scope of liabilities. 

Liabilities are defined as any financial debts or obligations. Like assets, liabilities make up a broad, wide-ranging category.

Common liability examples:

  • Car loan
  • Mortgage
  • Back taxes
  • Medical bills
  • Personal loans
  • Business loans
  • Credit card debt
  • Student loan debt

Just like with assets, liabilities vary depending on a person's circumstances.

Step 3. Calculate your net worth

Once you know both your assets and liabilities, it’s time to calculate your net worth. To do so, use the net worth formula, which means subtracting your total liabilities from your total assets.

An example of how to calculate your net worth can be helpful.

Let’s say you have $250,000 in assets and $75,000 in liabilities. Here’s how you’d use this in the formula:

  • Net worth = Assets − liabilities
  • Net worth = $250,000 − $75,000
  • Net worth = $175,000

However, let’s say that you have acquired a new home outright, worth $125,000, but you have also taken out a $10,000 personal loan to begin a new project. Your assets would jump from $250,000 to $375,000, and your liabilities would change from $75,000 to $85,000.

Here is how your net worth would change, based on these new numbers:

  • Net worth = Assets − liabilities
  • Net worth = $375,000 − $85,000
  • Net worth = $290,000

Calculate your tangible net worth

Your overall net worth encompasses both tangible and intangible assets. Tangible net worth further subtracts intangible assets from the net worth formula. 

Tangible net worth = assets − liabilities − intangible assets

Although net worth is often calculated with intangible assets in mind, in some situations tangible net worth is a more helpful calculation. For instance, a practical application of tangible net worth could include liquidating a business, where the value of any trademarks, patents or copyrights aren’t applicable, as they’re considered intangible.

Manage your net worth

Tracking your net worth is a vital way to take stock of your financial health throughout life’s changes. It can also be helpful to speak to a financial advisor and get a sense of your net worth, which will help you identify ways to improve it, such as cutting expenses or investing. 

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