Net worth is one of those financial terms that gets thrown around a lot in the news or when talking about celebrities. Hugh Hefner’s net worth is estimated to be about $43 million, Paul McCartney’s is $800 million, Tiger Woods and Magic Johnson each at $500 million, and $200 million for Sandra Bullock. So what does all of that mean and why is it important?


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Calculate your assets


To clearly understand how these items fit into the grand scheme of net worth, the items would need to be appraised to determine their market value. As a general rule, if an item isn’t worth appraising, it probably isn’t really an asset.

With a mortgaged home, the amount of equity you have in the home can be considered an asset, even though you can’t sell just that part of your home. The amount of equity is based on the home’s market value minus how much of your loan is remains to be paid.

If you want to calculate the asset portion of a car you are paying for with an auto loan, it’s important to remember the car has likely depreciated since you bought it. Like the market value of the home, the calculation has to be made on what the car is actually worth and subtract what you owe.

These are not assets

Items that aren’t really assets are anything you couldn’t really sell for much money, like everyday clothing. A fur coat or designer dress might be an exception. The same goes for everyday items like dinnerware, unless of course it’s fine china. A $5,000 mountain bike is probably worth counting as an asset, but probably not $100 bike picked up at a discount store.

Your income isn’t considered an asset unless it is cash in the bank or under a mattress. Expected wages aren’t counted as assets.

Total up all of these figures, and you’ll have a clear picture of what you have in assets.

How to calculate debt

Debt can be a little bit tricky to calculate. Do you count what you would have to pay in a lump sum if you were to pay it off today, or by how much the total of all remaining payments equal when added together? You’re likely to get two different figures with each approach.


Debt doesn’t include monthly bills unless you’re behind on any of those and you owe a company or person money. Paying for services such as insurance aren’t really considered debt because it is mostly voluntary and basically counts against any cash assets you have.



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