Financial Literacy

2 Simple Components for Calculating Net Worth

Are you just learning the ropes of personal finance? Knowing your net worth is a good place to start. Everyone has a net worth, and calculating it is easy with 2 simple components.

What are the components for calculating net worth? Net Worth is one of those things that everyone in the finance community knows about and often talk about. Many FIRE bloggers track it, including myself. Here are a few (and a link to mine as well):


It’s one of the main measures by which we decide if we can retire or not. It’s a number we have memorized and could probably recite to you even as it changes month to month, day to day. However, not everyone is a money nerd. What about those people who are just learning the ropes of personal finance? Knowing your net worth is a good place to start. Everyone has a net worth, and it’s easy to calculate. It’s a simple formula, so if you’re not a math person, there’s no need to be scared. If you can add two numbers together, you can do this.

The simple formula

Net Worth = Assets – Liabilities

Another common way to phrase it is, “What you own minus what you own.” So, what all does that include? If your new to the subject, this is where things can start to get a little fuzzy. A lot of the FIRE bloggers don’t include certain assets or liabilities in their net worth reports. And I think they do this justly for various reasons. I, myself, don’t include the value of my house. Why? Because I don’t plan on using any of its value in retirement. I plan to live in the house. However, if I was calculating true net worth, I would have to include its value. If you have never calculated net worth, you may start to questions whether you should include something or not. So, let’s go over everything you should include.


Assets is the first part of the fomula for calculating your net worth. Literally, it’s everything you own. Everything that has a monetary value too it. This is the number you want to be as big as possible. From your house and cars, to investments and retirement accounts. From clothes and furniture, to cash and jewelry. It becomes quite tedious to calculate net worth if you start including small things like your clothes and furniture and such. Most people will leave those out of their calculation. They’re small items and, hopefully, don’t move the needle that much. If you want to include them, go for it. Let’s take a look at some common big assets that WILL move the needle.


Cash is most often found in a checking or saving’s accounts, and it’s always a good day when you find some in your pocket. These days with electronic banking, it’s easy to have multiple accounts. Make sure you add them all.

Investment Accounts

These are often some form of retirement account. It should include your 401(k) and any IRAs, like a SEP IRA or a ROTH IRA. For teachers, military, government employees, or any other job with certain “special” retirement accounts, make sure to include those. Examples of those are a TSP, TRS, 403(b), or 457(b).

If you have an investment account that is not a retirement account, include that as well. Many of us FIRE bloggers have one since it’s difficult to touch the money in the retirement accounts without getting penalized if you retire early. Also include your HSA if you have one.


If you own a house, include it here. Include the whole value of your house, not just the equity, because we deduct the mortgage in the liabilities section. Property would also include any rental properties, vacation homes, land, etc. that you have.


Kind of self-explanatory. Cars, trucks, boats. If it as a motor, include it here. And, same as the house, include the whole value that you could sell it for.


Early, I said you don’t have to include the small things, but if you have big things, here is the spot. Jewelry, music equipment, gun collection, art collection, the list goes on and on. If you think it’s valuable enough to include, then go ahead and include it.


Liabilities is the second of the components for calculating your net worth. It’s ANY debt you owe. This is the portion that you want to be a small number. Having $0 in liabilities would be the best. It is a good goal to set if it’s not already at $0. The most common debt would be in the form of loans. If you listen to the radio or watch the news, hardly a day goes by where they’re not talking about loans in some form or another, and the talk is never good. Loans are something you want out of your life.

Let’s take a look at some common liabilities.


If you have a mortgage on any property that you own, include it. Your own house, vacation house, rental properties. If it has a mortgage, it’s a liability.

Other Loans

Probably the two most common types of loans, aside from mortgages, are student loans and auto loans. Other types of loans might include personal loans, payday loans, and business loans. It’s not uncommon to have loans from multiple places, so make sure to catch them all.

Credit Cards

One of the worst types of debt because of their high interest rates.


This includes utility bills, tax bills, medical bills, or any other bill you have. If you have bought some goods, or had any service or work done, and owe money for it, include it.

Example of an average person

To drive home the point, here’s an example. Let’s take a look at, …hmm, what should we call him…. Average Joe. He’s your average guy, 40 years old, 2 cars, and is married with two children.

Joe has the following assets:
Savings account: $10,000
Checking account: $2,000
401(k) account: $63,000
Cars’ value: $42,000
Home value: $357,700

Total assets: $474,700

Joe has the following liabilities:
Mortgage: $309,200
Student loan: $29,800
Auto loans: $40,200
Credit card debt: $16,000

Total liabilities: $393,200

Now, remember our equation:
Net Worth = Assets – Liabilities

Joe’s Net worth = $474,700
– $395,200
= $79,500

Average Joe is Average

You may be wondering why I included so much information about Joe. Well, you see, Joe is very average indeed. The values I used are the national averages for each of their respective categories. If you would like to take a look at where I obtained the averages, here they are:

Average Savings: Bankrate
Average Checking: SmartAsset
Average Retirement: Synchrony Bank
Average Auto info: LendingTree
Average Home Value: U. S. Census
Average Mortgage: The Motley Fool
Average Student Loan: Student Loan Hero
Average Credit Card Debt: Discover

Joe’s net worth is $79,500. That’s pretty close to the median net worth of $87,842.71 for his age group. That makes sense since we used average figures as inputs. DQYDY has broken down the statistics, and even put together a calculator for seeing how you compare. He also provides net worth statistics, if you are curious.

Try it yourself

You should now have a good grasp on the components for calculating your net worth. So, go ahead, and give it a try. How’s your net worth doing? Are you on track to retire early, let alone at a reasonable age? Average household income is slightly over $60,000. That means our Average Joe has slightly over 1 times his annual income saved for retirement by the age of 40. He has a long way to go before he can retire. If anything, I hope I can encourage you to shed some debt and increase your assets at a faster clip than average.

If you prefer not to do the math and would rather just type in the numbers, there are a host of net worth calculators online that will do the math for you. Really, you can just Google “Net Worth Calculator” and find one you like. Here are a few options to get you started: NerdWallet, Kiplinger, and BankRate.

To those of us striving to be financially independent or retire early,
FIRE Away!