How Do You Calculate Net Worth?

| Nov 07, 2009 | 6 comments

So in my last post I mentioned a new and improved way I was planning on calculating my net worth.  The general consensus says that the mortgage is the liability and the house is the asset.  People seem to be getting hung up on the fact that you’re not comparing apples to apples.  You’re comparing apples to oranges.  Yes, they’re both FRUIT, but they’re not both apples. 

Some people choose to just not include their house at all in their net worth – MyMoneyBlog seems to think that’s a fair assesment – How about cars?  I include it, because it IS something I tangibly own and could tangibly sell for a profit.  That number will go down over time, but for now, it is still worth something until I run it over a cliff.  Then my net worth drops a bit. 

Ultimately I think it is really about how you feel best displaying it.  There is no “universal net worth calculator” – each person sees it their own way.  I, for instance, didn’t like having to look at my net worth progress bar in the red and it would have been there for quite a while had I not converted it to reflect my new method of adding my house value as an asset to the + column and subtracting the mortgage liability from the – column.

Chose your own path – as long as the investments are turning good profits, there really is no “bad” net worth calculation -

Filed Under: advice • Net Worth

  • http://homefinancefreedom.blogspot.com/2007/05/biggest-net-worth-mistakes-is-your-net.html J at Home Finance Freedom

    Hello.

    There is only 1 basic way to do net worth, liquidating ALL assets and liabilities now.

    There are many ways other than net worth to track one’s finances.

    It is OK to choose an orange as long as you do not try to convince everyone that your orange is an apple.

  • http://www.financialchoices.blogspot.com/ Financialchoices

    First time on your blog…looks great.
    I am currently struggling with these concepts myself. If you read “Rich Dad Poor Dad” by Robert Kiyosaki, your house is not an asset for sure. He defines an asset as something that gives you money on a monthly basis. For me, I am defining an asset as an entity I would be willing to sell at some point in the future in order to get money back. I do not count cars as assets or even liabilities. This get’s into too much detail for me. We owe about $2K on my wife’s car and my car is free and clear but this is not shown on my net worth worksheet. I reflect the changes in my cash flow through my bank account with the cost of a car payment. I feel ok with this method for now. If anything, I am cheating myself out of about $4K in net worth. i.e. my car is worth about $6K and my wife’s liability is about $2K. My wife and I would never really be in a position to sell our cars unless buying a new one. We need them to get to work.
    Thanks for commenting on my blog!!

  • http://homefinancefreedom.blogspot.com/2007/05/biggest-net-worth-mistakes-is-your-net.html J at Home Finance Freedom

    Thank you. You might want to stick to the definitions from a reliable finance glossary (google for one) and choose the correct term that matches your goal. My net-worth article series (click name link for the first article) mentions other terms that are designed to focus more on liquid wealth.

  • hank

    @ J – Agreed – apples are apples at all times, and oranges, oranges, you’re the one that sees the net worth 99.999% of the time, so work it how it makes you feel comfortable, within reason ;)

    @Financialchoices – yes, I did read R. Kiyosakis book (working on a review) and yes he says that it has to be income generating to be an asset, and that’s “technically” what I did with the NEW net worth calculation post because it IS generating profit, albeit VERY little, it still is… ;)

    Thanks for the posts!

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