Your net worth calculation provides a financial report card for how you are doing at this point in time. It is calculated by subtracting all of your liabilities (what you owe) from your total assets (what you own). If your assets exceed your liabilities (well done!) you have a positive net worth. If your liabilities are greater than your assets, then you have a negative net worth. Keep in mind, your net worth fluctuates over your entire adult life, responding to changes in income and spending habits. While it is helpful to calculate your net worth in order to figure out how you are doing financially today, your net worth is most beneficial when it is calculated and evaluated periodically over time. By noting changes in your net worth, you can see trends in your financial situation, be proactive about making better financial decisions and figure out what you need to do to reach your short-term and long-term financial goals. You can improve your net worth by increasing your assets, reducing your liabilities or a combination of the two. This article will focus on common assets that boost your net worth.

A Quick Review
Net worth is the difference between your assets and liabilities, calculated as:

Net Worth = Total Assets - Total Liabilities

While your liabilities are easy to quantify (you probably receive a reminder each month that states the exact amount of money you owe to each creditor) it can be challenging to determine accurate values for some of your assets. It is best to make conservative estimates to avoid over-inflating your net worth (which may give you a false sense of financial security). Your house is likely your most valuable asset and the value that you assign to it can have a great impact on your net worth calculation. A qualified real estate professional can give you an estimate of your home's value, or you can do your own research using online real estate aggregators such as www.trulia.com or www.zillow.com. Here, you can look up real estate trends in your area and determine the sales prices for recently sold, similar properties in your area. To be really realistic, subtract the going commission (such as 4% or 6%) to cover the future cost of selling the home.

When in doubt, be honest and conservative in estimating the market value of any of your assets - including your home, vehicles, collectibles, furnishings and jewelry. Be realistic about the condition of your assets, and try to base these figures on what you could sell each asset for now, rather than:

  • How much you paid for it
  • How much you wish it were worth

Assets that Boost Your Net Worth
While any asset can boost your net worth, several "large" assets are likely to have a greater positive effect on your bottom line. These include your:

Primary Residence
As mentioned previously, your house is probably your most valuable asset (it may simultaneously be your biggest liability). The more equity you have in your home, the more it will increase your net worth. Keep in mind that when you determine your net worth, you must subtract your liabilities - including your mortgage. If your home is valued at $300,000 and you owe $200,000 on your mortgage, your home will effectively add $100,000 to your net worth ($300,000 - $200,000 = $100,000 equity). If you owe only $50,000 on that same home, however, the house will add $250,000 to your net worth ($300,000 - $50,000).

There is a bit of controversy surrounding the usefulness and appropriateness of including your home in your net worth calculation. Proponents believe that your home is your most valuable asset and should definitely be included in your net worth calculation. Opponents argue that you should not count it because if you sold it (for example, during retirement) where would you live? To appease both schools of thought, many individuals choose to create two net worth statements: one that includes the house (as both an asset and a liability if there is a mortgage), and one that leaves it out as an asset (while still including it on the liability side of the equation if there is a mortgage).

Vacation Homes and Rental Properties
Vacation homes and rental properties may have a positive effect on your net worth. In many cases, these other-than-primary-residences are paid for outright with cash. For example, many people purchase condominium units as vacation homes. Condos are often paid for in cash because, firstly, they tend to be cheaper than single-family homes in the area, and secondly, the mortgage requirements are a lot more complicated and strict than for a single-family home. According to a 2011 Realtors' survey, 36% of vacation home buyers paid cash.

If you paid cash for your vacation home or rental property, your net worth will increase by the same amount by which the home is valued, less any expected capital gains taxes (if you were to sell the home), if applicable, and any related expenses such as property taxes and insurance. And because you will still have a place to live if you sell your vacation home or rental property, you can safely count it as an asset without worrying about the don't-count-your-home-as-an-asset school of thought.

Investments
Investments can be another major contributor to overall net worth. Although there are several different types of investments, some of the most common include stocks, bonds, mutual funds, ETFs and any other securities. The value of your investments in any tax-deferred retirement plans, such as 401(k)s, 403(b)s and IRAs (individual retirement accounts) can significantly increase your net worth. Most investments will fluctuate over time, so it is important to reflect these changes in your periodic net worth calculations. Note: taxes on these assets are contingent liabilities that should be included in the liability side of your net worth statement in order to provide a more realistic view of your financial situation.

Art and Other Collectibles
Art and other collectibles can add considerably to your net worth. The value of these assets, however, is often fickle and changes depending on current trends and the demand for such items. Because market values do change over time, and because we are often not aware of the value of certain collectibles - consider the many people who strike it rich on PBS's "Antiques Roadshow," bringing in garage sale finds to find out they are worth tens or hundreds of thousands of dollars - it may pay to seek out professional appraisals. In addition to having a good estimate for your net worth statement, you can also make sure the item is adequately insured against losses (your homeowner's insurance policy may not cover art and other collectibles without a specific rider).

The Bottom Line
Your net worth statement is a highly personalized financial report card. It provides a picture of where you stand - financially speaking - at this point in time, and can help you make progress towards reaching your short-term and long-term financial goals. Certain assets, such as homes, investments and art, may have the greatest impact on your overall net worth. When valuing any asset, it is important to determine fair market values - how much money you could make if you sold the item today - whether it's a stock, your house or a piece of jewelry. Accurate values can provide you with a realistic net worth, which can help you make better financial decisions. If you're looking for a tool to help you track your net worth, use our free Net Worth Tracker which allows you to calculate, analyze and record your net worth for free.

Related Articles
  1. Entrepreneurship

    Top 3 Billionaires Living In Monaco

    Read about the wealthiest people of Monaco; this tiny nation state boasts the most millionaires and billionaires per capita in the world.
  2. Budgeting

    Common Liabilities That Hurt Your Net Worth

    Every penny that you keep out of the liability side of the net worth equation essentially ends up on the asset side.
  3. Personal Finance

    The Complete Guide To Calculating Your Net Worth

    Here's everything you need to know about calculating your net worth.
  4. Retirement

    What's Your Net Worth Telling You?

    Net worth provides a road map for retirement - learn if you're headed in the right direction.
  5. Philanthropy

    How Billionaires Around the Globe Give Back

    This list of foreign billionaire philanthropists is robust. Here's a list of rich entrepreneurs around the globe who have given back in really big ways.
  6. Term

    What High Net Worth Means

    A high net worth individual is someone with many liquid financial assets.
  7. Your Practice

    Advisors: Avoid Making This Mistake with Clients

    Financial advisors who focus only on wealthy clients may be missing out on a significant portion of business. Here's why.
  8. Estate Planning

    A Look At Robin Williams' Net Worth and What Happened to His Estate

    Understand what happened to Robin Williams' estate and what his estate included. Learn about the court battle over his remaining possessions.
  9. Wealth Management

    A Look At Britney Spears' Net Worth and Her Conservatorship

    Discover how Britney Spears' net worth plunged in 2007 and has since been growing under the management and direction of her conservatorship.
  10. Credit & Loans

    10 Ways Student Debt Can Destroy Your Life

    If you're getting a student loan, think critically about how you will manage your loan. Student debt could have a profound negative impact on your life.
RELATED FAQS
  1. Under what circumstances would I benefit from a high net worth insurance policy?

    A high-net-worth insurance policy is specifically tailored to suit the needs of high-net-worth individuals. It is specifically ... Read Full Answer >>
  2. Under what circumstances would I require private wealth management?

    An investor who is a high-net-worth individual (HNWI) may require private wealth management services. HNWIs have unique financial ... Read Full Answer >>
  3. What is private wealth management?

    Private wealth management is an investment advisory practice that incorporates financial planning, portfolio management and ... Read Full Answer >>
  4. When is litigation better than mediation in a high net worth divorce case?

    Typically, litigation is better than mediation in high-net-worth divorce cases for two major situations – when there are ... Read Full Answer >>
  5. Which US cities have the highest number of high-income households?

    According to the most recent U.S. Census report on the geographic concentration of high-income households conducted in 2 ... Read Full Answer >>
  6. Why are fee-based accounts preferred by many high net worth individuals (HNWI)?

    High net worth individuals (HNWIs) often prefer fee-based investment accounts for reasons that include reduced conflicts ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center