Frequently asked questions about net worth
How do I calculate my net worth?
First, add up all your assets. These can include a house, rental property, a car or boat, furniture and other personal possessions. Also include the value of your investments, such as stocks, mutual fund shares and the value of any retirement accounts. Dont forget to include the money in your checking account as well as the built-up cash value of your life insurance, if any. Next, subtract all your debt -- your mortgage, credit-card balances, car loans, personal and student loans and the like. Also remember to subtract any other liabilities, such as unpaid medical bills or money you owe the Internal Revenue Service. Finally, subtract your debt from your assets. The result is your net worth.
Why should I bother calculating my net worth?
Your net worth is the difference between your assets and your liabilities (debts). Establishing your net worth can help determine the types of investments you should make in the future. Banks and other lenders will need to ascertain your net worth to help determine if youre a good credit risk. Your net worth will also be an important factor in deciding whether you or your child qualifies for college financial aid. And, some types of investments -- such as certain types of limited partnerships or hedge funds -- are closed to people who do not meet minimum net worth requirements.
What are my liabilities?
Simply put, liabilities are the debts you owe. You subtract your liabilities from the total value of the assets you own to determine your net worth. Liabilities include your mortgage, credit card debt, installment and auto loans, loans against a life insurance policy, students loans and loans against your investments (such as margin loans with a brokerage firm). Other liabilities include any taxes you owe -- even taxes you would owe if you sold all of your investments today.