You might think that net worth applies only to billionaires on the Forbes 400 list. But even if you don’t have the wealth of a Bezos, a Beyoncé, or a Buffet, net worth is an important financial measurement to know. And calculating yours can help you get a better sense of your overall financial health.
Let’s dive deeper into what net worth is, how to calculate net worth, why it’s important, and how you could increase yours.
What is net worth?
Net worth is the total value of all your assets, minus your liabilities. In simple terms, it’s what you own minus what you owe.
Assets can include:
- Cash: Checking Accounts, Savings Accounts, Certificates of Deposit, Money Market Accounts
- Retirement accounts: 401(k)s, IRAs, 403(b)s
- Stocks and bonds
- Real Estate: House, vacation property, rental property
- Collectables: Art, jewelry, antiques
*Although you should include vehicles while calculating net worth, keep in mind that they’re depreciating assets. So, what your brand-new Toyota Highlander is worth today is more than what it will be worth a year from now.
How do I calculate my net worth?
Grab a calculator. Or even a pen and notepad — no complicated algebra or calculus is required. Simply add up the total worth of your assets, then the total amount of your liabilities. Subtract your liabilities from your assets and voilà! You’ve calculated your net worth.
And believe it or not, there are even easier ways. A host of net worth calculators are available online — including this one from NerdWallet — that can get the job done quicker. (No offense.)
Why is my net worth important?
We often think of financial success in terms of our assets — having a larger income, buying a nicer house, driving the newest car. But in reality, assets are only part of our personal finance picture.
When you subtract your liabilities, you can get a truer sense of your financial health. If you have $200,000 in assets, but owe $150,000 in credit-card debt, student-loan debt, and your mortgage, you’re not actually as well off as you initially may think. Likewise, if you have $50,000 or $75,000 in assets but are debt free, you might be in better financial shape than you originally thought.
Net worth is also important when you apply for a mortgage or loan, since it’s an easy measurement for lenders to look at when determining whether to approve you for a loan.
How can I increase my net worth?
The good thing about net worth is it’s ever changing.
You can increase your net worth by following standard personal finance best practices (save more, spend less, pay down debt, invest in stocks and retirement funds) since these all can contribute to increasing your total assets and reducing your total liabilities. You can also boost your net worth by paying off your mortgage and trimming monthly expenses.
How can savings and investing tools help?
Your net worth is a valuable financial measurement to know because it’s a true representation of where you stand financially. While it’s fun to know how much money you have, it’s equally important to know how much you owe.
Grow your net worth by saving more with Ally Bank…
…Or explore your investment options with Ally Invest.