Net Worth Formula Definition

To calculate my Personal Net Worth, I substitute the information below in my Net Worth Formula.  The basic formula for Net Worth is:  ASSETS minus LIABILITIES.  It is defined as Everything you OWN, minus Everything you OWE.


Step 1 of the Net Worth Formula is to define the value of all financial accounts, and everything else you own. I usually use conservative estimates of value for assets when the value is not quick or easy to determine. This helps to ensure a realistic final value for Net Worth. For example, for a primary residence (house, townhouse, condo, etc) begin with the estimated value (assessed value, appraisal, whatever you think is realistic). Then deduct 6% for realtor commission when you need to sell, and then deduct another 10% to be conservative. So a house worth $100,000 would be valued as follows:

100,000 – 6,000 (6%) – 10,000 (10%) = 84,000 estimated value of this asset

Here is a checklist of assets you can use:

  • Interest-earning assets held at financial institutions
  • Passbook savings account
  • Money market deposit accounts
  • Certificate of deposit
  • Interest-earning checking accounts
  • Other interest-earning assets
  • U.S. Government securities
  • Municipal or corporate bonds
  • Stocks and mutual fund shares
  • Rental property
  • Mortgages held for sale of real estate
  • Amount due from sale of business or property
  • Regular checking accounts
  • U.S. savings bonds
  • Home ownership
  • Vacation homes and other real estate
  • IRA and Keogh accounts
  • 401K and thrift savings plans
  • Motor vehicles
  • Other financial assets


Step 2 of the Net Worth Formula is to define all of your liabilities. This category includes mortgages, car loans, student loans, credit cards, and home equity loans.

Here is a checklist of liabilities you can use:

Secured liabilities

  • Margin and broker accounts
  • Mortgages on own home
  • Mortgages on rental property
  • Mortgages on other homes or real estate
  • Home equity loans
  • Debt on business or profession
  • Vehicle loans

Unsecured liabilities

  • Credit card and store bills
  • Doctor, dentist, hospital, and nursing home bills
  • Loans from individuals
  • Loans from financial institutions
  • Educational loans
  • Other unsecured liabilities


Step 3 of the Net Worth Formula is to perform the final calculation:  ASSETS minus LIABILITIES. The result equals NET WORTH.

Now you have defined your own Personal Net Worth!

One thought on “Net Worth Formula Definition”

  1. I calculate net worth about the same. One minor exception is that I don’t include the cars’ values.
    The major exception I make is to exclude my full home value. Why? Because my ‘number’ is the total asset goal I need to reach to fund a decent retirement income. The house doesn’t fit into that goal. Say we’d need $80k/yr to retire, and $30k will come from social security. The remaining $50k requires $1.25M for a 4% withdrawal. The 1.25M needs to exclude the house.

    To sum it up, our net worth is our income producing assets. The number you calculate I call our estate value. It’s what we leave to our heirs when we die.

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