Net Worth Equation
By: Austin Colby, CFP®, MBA
What is Net Worth?
Net Worth is all the stuff you have, less all the debt you owe.
Assets minus liabilities.
The number at the end of that formula (be it positive or negative) is your net worth.
If you have a home that is worth $350,000 and have a mortgage on the home of $300,000, the net worth of the home is $50,000 (minus the costs associated in selling the home). Most people would say they have a $350,000 home.
I would say you have a $50,000 home and a monthly payment for the balance.
Sample net worth statement of recent college graduate:
Bank balances: $500
Retirement savings: $0
Appreciating illiquid assets (home, property, business): $0
College diploma: $0
Total Asset values: $1,500
Student loans: $75,000
Car loan: $2,000
Credit cards: $5,000
Total Liability values: $82,000
$1,500 – $82,000 = ($80,500) – those parentheses mean negative.
A big part of financial planning is growing your net worth. There are two variables in that formula: A (Assets) and L (Liabilities). You have total control over the liabilities portion and some control over the assets portion.
Aggressively attacking debt and increasing your savings rates is a great way to improve your net worth.
Take some time to do the math: what is your personal net worth?
Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.