- A person's net worth can be simply defined as the assets of the individual minus the liabilities. Another way to say net worth is that it is what you own minus what you owe. If the value of the assets is greater than the liabilities owed, the person has a positive net worth. If the value of assets is less than liabilities, the net worth of the individual is negative.
- The broad definition of assets is any possession that can be sold for cash. Common personal assets are a home, retirement savings such as a 401k account or IRA, investments, rental property, a vacation home, cars and recreational vehicles. Cash or funds deposited in a checking or savings account can be considered an asset. Tangible assets include items such as precious metal bars or coins, works of art or other collectibles. Some of these items, such as stocks or a mutual fund account, are easy to put a value on. Others such as art, antiques or collectibles may be difficult to value.
- For an individual, most liabilities will be debts. Typical liabilities include a home mortgage, student loans, car loans and credit card debt. When computing net worth, the liability is the outstanding balance of the loan, not the payment amount. Total liabilities are the total of all loan balances the individual owes. Any loan with an outstanding balance is a liability and the amount owed should be included in liabilities for calculating net worth.
- To calculate a personal net worth, write the value of all assets in a column and add the values together. Then list all liabilities in a column and add together. Calculate the current net worth by subtracting the total liabilities from the total assets to arrive at a person's net worth. A computer spreadsheet can be set up to calculate and track a person's net worth. Every month, the values of the assets and liabilities are updated. Increasing asset values or declining liabilities lead to a growing personal net worth.
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