Your net worth, quite simply, is the dollar amount of your assets minus all your debts. You can calculate your net worth by subtracting your liabilities (debts) from your assets. If your assets exceed your liabilities, you will have a positive net worth. Conversely, if your liabilities are greater than your assets, you will have a negative net worth.
For certain applications, however, this basic net worth calculation may not be adequate. If you hold copyrights, patents or other intellectual property (IP), you may need to calculate your "tangible" net worth, which is the sum of all your tangible assets minus the total amount of your liabilities.
- Tangible net worth is the sum total of one's tangible assets (those that can be physically held or converted to cash) minus one's total debts.
- The formula to determine your tangible net worth is: Total Assets - Total Liabilities - Intangible Assets = Tangible Net Worth.
- Calculating your tangible net worth involves totaling all your assets—cash, investments, and property—and totaling all your secured and unsecured debt, and then subtracting the latter from the former.
What Is Tangible Net Worth?
Your tangible net worth is similar to your net worth in that it totes up your assets and liabilities, but it goes one step farther. It subtracts the value of any intangible assets, including goodwill, copyrights, patents and other intellectual property.
Businesses, for example, calculate tangible net worth to determine the liquidation value of the company if it were to cease operations or if it were to be sold. This figure can also be important to individuals who are applying for personal or small business loans, and the lender demands a "real" net worth figure. Your lender may be interested in your tangible net worth because it provides a more accurate view of your finances—and how much the lender could recoup if it had to liquidate your assets if you defaulted on their loan.
You might want to calculate your tangible net worth to quantify how you are doing financially, or to evaluate your financial progress over time.
Tangible Versus Intangible Assets
The difference between net worth and tangible net worth calculations is that the former includes all assets, and the latter subtracts the assets that you cannot physically touch. Assets are everything that you own that can be converted into cash. By this definition, assets include cash, investments, real property (land and permanent structures, such as homes, attached to the property), and personal property (everything else that you own such as cars, boats, furniture, and jewelry). These are your tangible assets: They are all things that you can hold. (Strictly speaking, investments are financial assets, not tangible ones. But because they can be converted to cash, they're often put in the tangible category for purposes like this.)
Intangible assets, on the other hand, are assets you cannot hold. Goodwill, copyrights, patents, trademarks and intellectual property are all considered intangible assets since they cannot be seen or touched even though they are valuable. If you are selling your small business, you may be able to rightly argue that these intangible assets add value to the business. However, in the case of determining tangible net worth as part of the loan process, the bank may only consider those assets that are tangible because they could be more easily liquidated.
Calculating Your Tangible Net Worth
The formula for calculating your tangible net worth is fairly straightforward:
Tangible Net Worth
To calculate your tangible net worth, you must first determine your total assets, total liabilities and the value of any intangible assets:
|Total Assets||Total Liabilities||Value of Intangible Assets|
|Cash and cash equivalents
|Secured liabilities - auto, mortgage, home equity loans, etc.
Unsecured liabilities - credit cards, medical, student and personal loans, taxes, etc.
Calculating your net worth is a multi-step process. Before you start, decide if you want to calculate net worth individually (you) or jointly (you and your spouse/partner). Also, get all your financial statements (such as bank statements and credit card statements) in one place.
The first time you calculate your net worth will probably take the longest. Once you figure out the methodology and how to value your assets, however, the process will likely take less time. Here's a step-by-step approach.
The first hurdle to correctly determine the value of your assets. Begin with the most liquid ones, the amount you have in cash and cash equivalents, including:
- Certificates of deposit
- Checking and savings accounts
- Money market accounts
- Physical cash
- Treasury bills
Next, move on to investments, determining their current market value. These include:
- Life insurance cash value
- Mutual funds
- Retirement plans – IRA, 401(k), 403(b)
- Other investments
Next up: real and personal property—tangible assets. Remember, real property includes land and anything that’s permanently attached to it, such as a house. Personal property is everything else. Include:
- Collectibles—antiques, art, coins, etc.
- Household furnishings
- Home technology
- Primary residence
- Rental properties
- Vacation or second home
- Vehicles: cars, boats, motorcycles
Add 'em all up—the cash/cash equivalents, investments, and real/personal property. The sum represents your total assets.
Your liabilities are relatively easy to quantify since they represent all of your outstanding debts, and you likely receive monthly statements or reminders for them. These statements are based on actual numbers—not estimates—and show exactly what you owe.
Start off with the amount you owe in secured debts, including:
- Car loan(s)
- Home equity loan
- Margin loans
- Rental real estate mortgage
- Second mortgage
- Vacation/second home mortgage
Then move on to the amount you owe in unsecured debts, including:
- Credit card debt
- Medical bills
- Personal loans
- Student loans
- Taxes due
- Other debt and outstanding bills
Add secured debts and unsecured debts. The sum represents your total liabilities.
A Net Worth Spreadsheet
Once you have determined the value of all your assets and the size of all your liabilities, you can use the formula Tangible Net Worth = Total Assets - Total Liabilities - Intangible Assets) to determine your tangible net worth. A sample worksheet is shown below.
|Cash and Cash Equivalents||Secured Liabilities|
|Certificates of deposit||Auto loans|
|Checking account||Home equity line|
|Money market account||Margin loans|
|Savings account||Rental mortgage|
|Treasury bills||2nd home mortgage|
|Annuities||Credit card debt|
|Life insurance cash value||Personal loans|
|Mutual funds||Student loans|
|Retirement plans||Other debt and bills|
|Second home||Intangible Assets|
|Jewelry||Total Intangible Assets|
|- Total Liabilities|
|- Total Intangible Assets|
|Tangible Net Worth|
Tips for Calculating Net Worth
Having organized records is extremely helpful and will help speed up the net worth calculation. For example, if all your important financial statements are kept in one file cabinet (or file on your computer), you’ll be able to find the necessary information quickly. If your records aren’t organized yet, now is a great time to start.
While you’re at it, create a "Net Worth" file (again, in your file cabinet or on your computer) where you can keep all your net worth statements for comparison. The bottom line is it's going to be easier (and more fun) to calculate your net worth on a regular basis if you don't have to hunt down every piece of information.
The Bottom Line
Your tangible net worth is equal to the value of all of your assets, minus any liabilities and intangible assets including copyrights, goodwill, intellectual property, patents, and trademarks. While a standard net worth calculation (assets minus liabilities) will suffice for most individuals, those who hold intangible assets may be required to calculate their tangible net worth to satisfy a lender's requirements for a personal or small business loan.
Even if you plan on using one of the many online tools or apps to calculate your net worth, it’s a good idea to do it yourself at least once—you’ll get the most out of the numbers that way. While you can use pencil, paper, and a calculator, a spreadsheet program like Microsoft Excel or Google Sheets can do the math for you and reduce the chance of any math errors.
As with any net worth calculation, placing accurate values on assets is critical. Many individuals and businesses prefer to solicit the advice of qualified professionals when valuing intangible assets.