When speaking of an individual’s overall financial value, we often refer to their net worth. If you’ve heard this phrase tossed around in personal finance conversations or in the news, but you’re not sure exactly what that entails, you’re in the right place.

Determining your net worth is fairly straightforward and easy to accomplish. We’ll show you how to figure out your net worth and even how to improve it.

Ready to learn more? Let’s get into it! 🤑

What is someone’s net worth?

Your net worth, simply put, is the value of your assets — your possessions, the money in your bank account, your investment portfolio (if you have one), and anything else you own — minus your total liabilities, which is any outstanding debt or money owed, like car loans or credit card debt. 

If that sounds complicated, ask yourself this — if you sold everything you have for cash, then used that cash to pay off your debt, how much would you have left? That’s your net worth.

Remember, individual net worth can vary wildly from person to person, and isn’t always a surefire way to determine financial health.

A young adult new to the workforce with a hefty chunk of student debt may have a very different net worth from a middle-aged investor with several forms of passive income — the young adult may even have negative net worth! And that’s okay — it’s important to be mindful of the fact that net worth changes over time. 

How can I determine my net worth? 

Now that we’ve established what net worth is, are you asking yourself, “How can I figure out my net worth?” Follow the steps below to get started! 

Step 1: Add up your assets

The first step in determining your net worth is to take a good, hard look at your assets. 

So what are assets, exactly? Think of them as anything you own that has value. Obviously the balance of your bank accounts (like checking account and savings account) and any investments in your portfolio count as assets, but you also want to consider physical assets, as well. Things like real estate, jewelry, musical instruments, or art collections can hold monetary value and increase in value over time. 

If you’re asking, “Well, what about my car?” the jury is still out. Typically, vehicles are depreciating assets, meaning they don’t hold their value. So, unless you’ve got a freshly waxed ‘67 Shelby sitting in your garage, you probably don’t want to include vehicles.

Potential assets include:

  • Investment accounts — think stocks, retirement accounts (IRAs, 401(k)s, etc.), brokerage accounts, or mutual funds
  • Physical assets — any real estate, art, jewelry, musical instruments, household items, and other valuable physical items
  • Bank accounts — don’t forget to include your checking account, savings accounts, retirement savings, or any other accounts you may have

Assigning cash value to physical assets can be difficult, but it can help to take a look online to see current market value or speak with experts to get an idea of their worth. 

Once you get an idea of the total value of your assets, you’ll be ready to move on to the next step.

Step 2: Line up your liabilities

The next move is to take a look at all of your liabilities. 

Liabilities can be understood as any outstanding debt or money that you owe. When determining what your liabilities are, you’ll want to include any credit cards that have a current balance, any loans (vehicle, educational, or mortgage), and anywhere else you may owe money. 

Some examples of liabilities can include:

  • Student loans 
  • Credit card balances
  • Consumer loans 
  • Auto loans
  • Mortgage
  • Personal loans

List out each line of credit you have and include the outstanding balance. (It’s also really helpful for budgeting purposes to include your monthly payments and annual percentage rates.)

Once you’ve added up the total amount of money you owe on your outstanding debt, you’ll have determined your total liabilities. 

Step 3: Determine the difference

The final step to determine your net worth is simply to subtract your liabilities from your assets. That’s it! 

If the number you’re left with is $1.00 or more, congratulations — you have a positive net worth. If the number you see is preceded by a minus sign, this means you have a negative net worth. 

So what happens if you’ve got a negative net worth? Will you be admonished publicly by the panel from Shark Tank? Not even close! 

Here’s the deal — your net worth does not define who you are as a person. The important thing to remember is that this figure is almost always in flux, which is especially true for people who’ve taken on considerable student debt for a stellar education or who mismanaged their credit at first through financial inexperience. 

No matter what your personal situation may be, it’s really important to not feel defeated by a negative net worth. 

And the best part? By committing to good financial habits, you can turn that negative figure into a positive one!

How can I increase my net worth?

We all have to start somewhere. If you want to increase your net worth, there are a few ways to go about it. The general idea is to make sure you’re bringing in more money than you’re spending — or, more specifically, building your asset value faster than you’re taking on debt. Think of it as inflows and outflows of cash value. 

Let’s take a look at the best way to max your inflows while reducing the outflows!

1. Pay off high-interest debt first

Nothing can stymie financial independence and growing your net worth quite like high-interest debt — it can be a difficult pit to get out of. But you can toss yourself a proverbial rope and climb your way out by choosing a plan to pay off your debt and sticking to it. 

Consider using the debt avalanche method to pay off your high-interest debt. With this approach, you’ll need to:

  • Identify your line of credit with the highest annual percentage interest rate (APR)
  • Pay as much as you can afford each month toward that account
  • While still making your minimum payment on any other open account

Once this line of credit is paid off, continue on to the next-highest APR loan, and so on.

Remember, paying off debt takes time. Don’t be discouraged, but be aggressive and stick to your plan. Commit to keeping your hard-earned cash, not paying any extra to lenders. 

2. Invest your money wisely

Once you begin paying down your debt, you’ll want to start investing any extra money or large windfalls of cash into a diversified portfolio. The goal is to have your money work for you. If you’re new to investing, talk to a financial advisor to see where you might want to put some capital.

You can also explore any of these topics:

3. Put your interests and knowledge to work

What are you really good at? More importantly, what do you love? This is where investing can get very personal and, honestly, pretty fun. 

Are you into real estate and have any sort of remodeling skills? Fixer-uppers can be a good way to build a sidestream of passive income. 

If you’re a musician, you can invest in good, quality instruments — Indianapolis Colts’ owner Jim Irsay has been investing in guitars for years, with a collection valued at $100 million! 

Whether you’re into artwork, muscle cars, or hologram POG slammers, finding assets that you think could grow in value relative to inflation can be a fun and engaging aspect of maintaining a diversified portfolio.

4. Make more money

One of the best ways to increase your net worth is by increasing your inflow of cash! Simplified, this just means making more money. With the thriving gig economy, making money has never been easier. It all depends on how much time you can commit and what your interests are.

Have a car and some spare time? Buy yourself a cabbie hat and sign up for Uber or Lyft. Do you have a stockpile of Beanie Babies and Pokemon cards? List them on eBay for collectors. Is there a plasma bank near your home? Stop in, donate, get paid, and help save a life. There are so many ways to make money on the side — get creative with it. 

You can also angle for a raise or promotion at your 9-5. Think about having the conversation with your boss if the time is right and you’ve been crushing it in your current role.

5. Save your money

Another great way to minimize your cash outflow and maximize your assets is by doubling down on saving your money. Remember, the more money you have in your bank account, the higher your net worth will be — as long as your savings are outpacing your debt. 

It’s really easy to cut back and pad your savings with simple little hacks — especially if you’re sticking to a budget. Take a look at your bank statements and go through each transaction you see. Are there any surprises you didn’t budget for? Having an idea of your spending habits and seeing it written out can help you identify areas of overspending and assist you in dialing it back.

This is also a great time to find unnecessary spending — duplicate streaming services and other subscriptions are a huge culprit. Consider canceling anything that you aren’t using, or anything you wouldn’t mind replacing with a free service. The idea isn’t to deprive yourself of the things you like, but to dial back any excess discretionary spending in order to save. 

The final word

Have you ever made a plan, became disorganized about it, and fallen off the wagon? It’s really common. The best way to ensure that your plan to increase your net worth receives the best effort you can give is by staying organized! So, what’s the best way to stay on top of your finances? 

Quicken can help you see where your money is coming from and show you where it’s going. You can create custom savings goals, tailor your budget categories to fit your needs, and even monitor your investment portfolio and watch it grow. 

It’s pretty difficult to navigate without a map — let Quicken help you stay on course as you journey to increase your net worth and find your way to financial freedom.