As a preface, the importance of knowing your net worth can not be understated. You might be asking yourself, "What is net worth?". In that case, here is the short answer. It is the value of all your property you actually own minus what you owe. Many people, infact most people, have a negative net worth. Knowing what you or your family is worth on paper allows you to make more informed decisions on how much you should be saving for retirement, how much more you should be adding on top of your minimum monthly mortgage payment or planning for big-ticket purchases that you may be hoping on a loan for like a home, rental properties or a boat. This article will teach you the real way to calculate your net worth, making you a smarter investor and informed financial decision maker. So without any more time, let's get into it.

Net Worth In America - Prose Before Hos

Step 1 - Add Up Cash Assets

Get a piece of white paper, put a line down the middle of it and on the left side write "Assets". Write "1) Cash". Underneath that write "a)" and so forth until all of your cash assets are accounted for. This is money that you have on hand, not that you are expecting. Bank accounts you can easily access are part of your cash worth(not 401k's, mutual funds, stocks, or savings plans). So are CD's, money market account value and cash and change you have in your sock drawer.

Pretty easy enough. You are one step closer to calculating your net worth the real way. On to step 2.

Step 2 - Add Up Investments

The next step to calculating your net worth the real way is to add up all of your investments minus capital gain taxes that would be incurred if you cashed them out. Under your "Assets" column make sure to write "2) Investments" and under your "Liabilities" column go ahead and put "1) Investments: Capital Gain Tax". Figuring capital gain tax is very, very difficult if you do not know exactly what your average price of buy in is for each investment. Capital Gain Tax is usually 15% on whatever you have earned, so subtract that from the value of "Current Price minus Buy In Price" and that should be your amount of liability in tax. In your "Asset" column make sure to put each investments' current value and then in your "Liabilities" column put your amount of liability tax you will potentially have to pay if you cash out. Do your best to estimate exactly how much you have made or lost so you can get an exact as possible value.

Are you feeling like the idea of calculating your net worth the real way makes much more financial sense? On to step 3.

Step 3 - Add Up Retirement Accounts

Many people, when adding their retirement accounts to their net worth, do it wrong. If you are not aware, your net worth is what you are worth today, if you sold and cashed in everything minus what you owe. Not what you will be worth when you retire. So that being said, 401k's and other retirement plans usually have penalties for accessing your money early...before retirement age. It is almost impossible to get the value of your retirement savings accounts 100% right after considering penalties and back taxes, so a simple and conservative theory of mine says to take 25% from whatever you have, and that should be your real value.

In your "Asset" column write "3) Retirement Accounts" and underneath that write "a)" through whatever number of accounts you have. List all the total values of each account and in the "Liabilities" column go ahead and write "2) Retirement Account Penalties & Back Taxes". For each account figure 25% and write it in its specific area. This is step 3. It may seem like a more tedious process to figure all of this out, but having a more true value of your assets gives you a leg up on other people, allowing you to feel more confident and secure in your decision-making processes.

Now the fun begins. Step 4. This step is really what makes or breaks how real your net worth calculation really is.

Step 4 - Add Up Personal Property

To come up with an accurate estimate of your personal property, you are going to have to take some time to get things right. This asset group is usually the most over-inflated because most people take their properties retail value and not its true value. No, a Blu-ray is not still worth $30 after the wrapper is taken off. In fact, it is worth about 1/4th of that. Everything that you own should be added to this list.


The largest asset or liability, depending on the person or family, is probably your home. List your home's worth in your "Asset" column and the amount you owe, if any in the "Liability" column.


Your vehicles are tricky because unlike homes, you can not generally have partial equity in them. Either you own them or your bank owns them. If you have a loan, list what you still owe on your car as a liability. Do not list anything in the "Asset" column". If you do not owe any money on your car, go on and look the value of your car up. Most cars, around 54% are considered Good so go ahead and use that condition guidelines when using the pricing guide on Kelly Blue Book. If you are pretty sure your car fits another condition criteria then of course use that one instead.

Personal Property:

Everything that you own and can reasonably sell can be listed. Family picture albums and VHS's are generally worthless so do not list these. I have included a list of things and their estimated value to give you a sense of what you should be listing and for how much. Keep in mind, this is the price of the product that you could, without much trouble, sell to someone else. If I do not have a listed price, using is a lot more accurate than using Ebay. Just remember to look up the used price.

-Clothes - $1-$5 each (do not include socks or underwear for obvious reasons)

-DVDs - $2 each (They are not worth more than this. If it is a season estimate it at $5 give or take a few. If it is still wrapped, use Amazon)

-Electronics (TV, receiver, Blu-ray player, speakers, desktop computers, laptops, iPhones, etc.-Use Amazon)

-Books -$0.50 (As sad as it is to say, most books are not worth much. In fact, many are valueless. Franklin and Easton Press books are worth much more. These are the leather-bound books with gilded pages. They typically are worth $10-$75 each.)

-Furniture (What you would make at a consignment store)

-Yardwork Tools/Lawn mowers (Just think what you could sell it at a yard sale.)

-Bikes/Scooters -$5-$50 generally

-Sports Equipment (Yard sale prices)

I'm sure you can think of other things that I omitted and that is fine. Add them but remember to be reasonable in valuing everything as this will only help in the end. After figuring your personal properties' value, total all four asset categories together to give you your total asset value.

Why You Need to Know Your Net Worth

Step 5 - Add All Liabilities

If you owe money on a car or home, these should already be listed here. Whether it is student loans, home equity lines of credit, credit cards, or business loans; add them all to the "Liability" column. Total this amount and you should come out with a total liability price.

The key to becoming wealthy is understanding how to gain wealth. If you are a little disappointed with your net worth, asset value minus liability value, that is okay. You have now identified what is making your value so low and this gives you the first step in making a correction. Perhaps instead of going out to eat every night you cook at home. Use the extra money to put down on your home mortgage. Little things like this will help you build value, making you more attractive to lenders when you would like to buy that apartment complex for your investment portfolio. Like my father always has told me, "The borrower is the slave to the lender" but a smart borrower is savvy enough to be able to escape at anytime where an unintelligent borrower borrows more than what they can possibly pay for if they lose a job or for some reason, unexpected medical bills arise.

If you would like any other tips on how to calculate your net worth or on personal finance, don't hesitate to contact me. Calculating your net worth the real way makes much more sense and provides much more knowledge, ultimately allowing you to make wiser and more logical decisions on your way to prosperity and happiness.

I have listed a couple books that helped me on my way to understanding money and improving my financial IQ. Most people are afraid of money because most people don't understand it. They hide behind credit cards and deceptive wealth and pretend to know. Admit to yourself that you don't understand (if you do then of course not) and take that as your first step to actually understanding.

Anyone who Wants to be Wealthy Needs to Read This Book

Most Millionaires Don't buy Gucci and Drive BMW's!

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If you enjoyed this article, check out my other articles:

- How to Make Money Selling Used Books Online: A Complete Guide

- How to Choose the Right Law School

- Top 10 Richest Countries in the World (and why you shouls travel to them)

- Top Travel Places for the Rich

- Top 10 Wealthiest Cities in the Midwest (with a population over 50,000)