Calculating Net Worth

[This is a scheduled post; I’m away until August 6, when I’ll do an end-of-July summary.]

Net worth is “duh” levels of simple: take your assets, subtract your debts, voila. Except if you overthink it, and of course I overthink it. I have a Ph.D., it’s basically my job.

A major point of contention I see — and don’t have to deal with — is with real estate. Nobody actually knows what their home is worth (until they try to sell it), so trying to calculate equity with precision is tough. Meanwhile, it’s pretty clear what the mortgage is!

Many people include the presumed resale value of their cars. I did that when I first started using mint.com last year, and if I’d kept up with it, I’d have been in “positive” territory a couple of months earlier. But ultimately I decided that the car wasn’t really an asset in the sense that I was comfortable with. If tough times hit, I still wouldn’t sell it; I need it for basic life stuff. So just like I don’t include the value of my one nice piece of jewelry, or my computer, or a few other things that I theoretically could sell but never would, I don’t include the car. I might feel differently if it weren’t ancient and cheap. That is, if I owned a new-ish car, I might list it because I’d be able to trade down if I needed to. But really there’s nowhere to trade down to, given my 14-year-old car.

If I had a house, though, it would always be theoretically sellable for me if I lost my job or etc, so I probably would count my best guess at it in my net worth.

The other sticking point to me is: should I count cash that I know is about to disappear? I generally calculate on the last day of the month, that is, the day before I send in my rent check. My budget suggests that I’m probably going to spend about half my income in any given month. I feel like a more honest net worth might include only the content of my savings/retirement accounts and ignore the money dedicated to daily expenses. However, I am really lazy, and sorting this out would take a lot of work!

So, the end result of my net worth calculation is this: I take the contents of all my checking/savings accounts (I have a slew of them) and add that to the total of my retirement account. Then I subtract my credit card debt (and used to subtract student loan debt. Hey, doesn’t that “used to” sound nice?). It might not be the most accurate number, but it feels pretty close to what’s right.

Do you guys do something different?

12 thoughts on “Calculating Net Worth

  1. I include my car, but I do not include my checking account. I don’t keep much in there anyway and I think of it as temporary. I think everyone has a different approach. I kind of like it that way.

    1. I kind of like it too — it gives some insight into how people are thinking.

  2. So I do this two ways. In the one I share on my site, I keep it to assets and liabilities excluding my house and mortgage, and car. I also don’t use my chequing account in the calculation. If I just got paid my chequing account looks a lot better than it really is.

    For my personal net worth (that I don’t share) I put my house value (purchased cost) and the mortgage to offset it. I don’t do cars. Also, it’s hard to sell a house… which is why I still have one even though I rent my current apartment. It isn’t as “liquid” as it might feel.

    1. Oof, I often wish I owned a house…but I constantly hear stories like this. Not as liquid as it might feel is a good way of putting it.

  3. Tania says:

    Actually, my Quicken also tried to calculate my car into my net worth, but I took it off too. I plan to drive it until the wheels fall off. I do count my income, but I am aware of what’s there… normally, I operate on a zero budget, so the checking account is often below $100 and doesn’t impact things a whole lot. “Used to” sure sounds nice on that context! I include my retirement funds as assets, but I am not a fan of it…

    1. I don’t like my car much, so I’d rather not drive it til the wheels fall off…but I will if I don’t increase my income drastically in the next few years! Why don’t you like to include your retirement funds as assets? Because they’re not “liquid”?

  4. I just wrote a similar post about how I calculate my net worth!

    I include my remaining car loan in liabilities but don’t include the value of my car with my assets. I include retirement accounts and savings accounts with my assets.

    My “envelopes” or whatever I save up for for an upcoming expense (travel fund, car maintenance fund, Christmas fund), I consider a liability.

    I use the YNAB methodology: This month’s income for next months’ expenses; as well as budgeting down to zero. So at the end of each month, whenever I calculate my net worth, I have already deducted all of that month’s expenses. Whatever “living expenses” for the next month, the money comes out from the allotted income for the next month so the breakdown is crystal clear.

    Hope this helps! 🙂

    1. I’m in the process of figuring out YNAB — I like it a lot but I’m still working out a few kinks. I think it’s basically a really good thing though.

      I’m on my way to check out your post 🙂 Thanks for the comment!

  5. I’ve been struggling with this lately. I’d like to track my net worth, but I keep playing around with what should be included. Is it my personal net worth or me and the Hubs? It’s my student loans that are weighing us down, so I feel a personal calculation is more meaningful. I should just pick something and go with it. Waiting around is doing me no good. – Kate @ Goodnight Debt

    1. Yeah, I think “go with what feels good” is the rule here. In your case, though, if you’re married and your finances are mingled, I’d say even if you were the one who took the loans out, they’re both of yours now, so maybe a joint net worth is appropriate? I’m afraid that wasn’t very helpful since you were leaning in the opposite direction 🙂

  6. I exclude any large assets (house, car etc) and retirement accounts, though I tend to use the term ‘wet-worth’ on account of it being more liquid than real net worth 😉
    I caught myself putting in higher prices for my house to show continued net worth growth and besides, my house is worth only what someone else will pay for it; not what I would like to sell it for. So excluding it keeps me more honest.
    Best wishes,
    -DL

    1. Yeah, that makes total sense on the house/car. You’re the second person who’s said they don’t count retirement accounts, which surprised me! With you, I guess it’s because you’re looking to count only things that are really liquid (“wet-worth,” hee) and retirement accounts aren’t that, by design. Thanks for the comment!

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