Net worth provides a quick snapshot of your overall financial health. This simple figure is calculated by subtracting the dollar-value equivalent of all of your debts from all of your assets. Knowing your net worth can help you determine where you are in your financial journey — and, just as importantly, where you want to go. Read on for a quick guide to calculating your net worth.
What is net worth?
Net worth is calculated by subtracting all of a person’s liabilities from all of their assets. If an individual also has intangible assets — such as intellectual property (IP) — these can also be factored into their net worth. In this case, the value of intangible assets is also subtracted from total assets (in addition to liabilities like debts). This is known as tangible net worth.
Tangible net worth is generally more relevant for business entities than for people. For example, if a company is being sold or liquidated, its value needs to be determined. This is done via a calculation of tangible net worth, which would factor in intangible assets a company may have, like copyrights. However, since we’re focusing on personal finance, we’ll concentrate on the more straightforward net worth calculation.