My Financial Awareness - College Education

Home Education Series Advanced Topics Blog

Lesson 3a: Net Worth

Objective: Calculate your net worth.

"Only 40% of households have calculated their net worth in the last two years."
- Survey of Consumers, November and December 2001

Do you know your net worth? Many people do not, most likely due to a feeling of shame or a fear of disappointment. This is especially true if they have credit card debt or if their 401(k) fund had a disappointing year.

Calculating your net worth is a relatively easy process. The calculation is only meant to be used as a starting point to show you how much you need to save for retirement or your child's education, for instance. However, calculating your net worth can bring up a lot of guilt, anger, and shame. It brings up feelings based on the meaning that we put behind our net worth. We tend to link our self-worth to our net worth. Thus, if we have a low or negative net worth, we may feel low self-worth and shame, a feeling of being "less than." If this happens to you, it is important to deal with the guilt and shame, and increase your self-worth by not relating it to your net worth. This is discussed in the self-worth section.

Calculating your net worth consists of listing your assets and your liabilities (debts); the difference between the two is your net worth.

Your assets are things like your house, savings (bank, bonds, or equities), retirement accounts (401(k), annuities, IRAs, etc.), equity in your business, cash value for your life insurance policy, automobiles, jewelry, art, home furnishings, loan that you gave to someone else, etc.

When valuing some of your personal belongings such as cars and home furnishings, be conservative because if you were to resale the item today, you will get a much lower value than when you bought it (especially if you need to liquidate your possessions quickly). You can find the value of your car at Kelly Blue Book or Edmunds.

Your debts (liabilities) are items that you owe to someone else like mortgage, student loan, credit card debt, etc.

The difference between your assets and your debts is your net worth. If it is negative, you have some work to do in getting out of debt. If positive, you can use this as a starting point for calculating what you need to save for retirement, etc.

A sample net worth statement:

Assets		Liabilities
Checking Acct.	$500	Car Loan	$1,500
Savings Acct.	$2,000	Student Loan	$10,000
401(k) Balance	$45,000	Loan with parents	$4,500
Car(s)	$3,000	Total Debt	$16,000
Jewelry	$1,000
Paintings	$500	Net Worth	$36,000
Total Assets	$52,000

Exercise: Calculate your net worth and notice the feelings that it brings up. Do you feel shame? Do you want to hide your results from others? Or do you feel proud of how hard you have worked to increase your net worth? For now, just notice the feeling. We will discuss it more later.

	Financial Topic : Good Debt vs. Bad Debt
	Educational Menu

The material on this website is provided for educational purposes only. We make no guarantees regarding the accuracy, completeness, or applicability of any material presented on this website. This website is not a substitute for individual financial or counseling advice. You should seek the advice of a professional regarding your particular situation. My Financial Awareness is not responsible for any losses, damages or claims that may result from your financial decisions.