Your net worth is simply the dollar amount of all of your assets minus all your debts. If your assets exceed your liabilities, you end up with a positive net worth. Conversely, if your liabilities are greater than your assets, you will have a negative net worth.
For certain applications, this basic net worth calculation may not be adequate. As such, you may need to determine your tangible net worth. This figure represents your actual net worth without any estimations or assumptions. This means you'll need to calculate this figure if you hold assets like copyrights, patents, or other intellectual property (IP).
In this article, we explain the importance of your tangible net worth and how to calculate it.
- 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.
- Companies use their tangible net worth to tell them how much the company is really worth if they ever decide to sell the business.
- Lenders may ask individual consumers for their tangible net worth before making any decisions to advance credit.
- You can determine your tangible net worth by subtracting your total liabilities and intangible assets from your total assets.
- 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 further. It subtracts the value of any intangible assets, including goodwill, copyrights, patents, and other intellectual property. Put simply, it puts a value on all of your physical assets.
This figure is important for corporations because it helps determine their actual net worth using physical assets. Businesses calculate their tangible net worth to determine their liquidation value if they were to cease operations or if they were ever sold.
It is also important for individuals who apply for personal or small business loans with lenders who require a "real" net worth figure before making a decision. 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 default 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 vs. Intangible Assets
The difference between net worth and tangible net worth calculations is that the former includes all assets while 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:
- Real property (land and permanent structures, such as homes, attached to the property)
- Personal property (everything else that you own such as cars, boats, furniture, and jewelry)
These are your tangible assets or everything you can hold. Keep in mind, though, that 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 want to sell your small business, you may be able to argue that these intangible assets add value to the business. The bank, though, may only consider any assets that are tangible because they could be more easily liquidated when it comes to determining tangible net worth as part of the loan process, the bank
Calculating Your Tangible Net Worth
The formula for calculating your tangible net worth is fairly straightforward:
|Total Assets||Total Liabilities||Value of Intangible Assets|
|Cash and cash equivalents||Secured liabilities, including auto loans, mortgages, and home equity loans||Goodwill|
|Investments||Unsecured liabilities, including credit cards, medical, student, and personal loans||Patents|
|Real property||Deferred tax liabilities on retirement accounts, etc.||Trademarks|
|Personal property||Intellectual property and other IP|
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 or partner). Also, gather all your financial statements in one place. This includes documents like your bank and credit card statements,
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 is 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 (CDs)
- Checking and savings accounts
- Money market accounts
- Physical cash
- Treasury bills
Next, move on to investments and figure out their current market value. These include:
- Life insurance cash value
- Mutual funds
- Retirement plans, such as IRA, 401(k), 403(b)
- Other investments
Next, get values for real and personal property or all of your tangible assets. Remember, real property includes land and anything that’s permanently attached to it, such as a house. Personal property is everything else. Including:
- Collectibles like antiques, art, and coins
- Household furnishings
- Home technology
- Primary or principal residence
- Rental properties
- Vacation or second home
- Vehicles: cars, boats, motorcycles
Add up the cash/cash equivalents, investments, and real or personal property. The sum represents your total assets.
Your liabilities represent all of your outstanding debts. They should be relatively easy to quantify since you likely receive monthly statements or reminders for them. These statements are based on actual numbers rather than 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 or second home mortgage
Then move on to the amount you owe in unsecured debts, including:
- Credit card debt
- Medical bills
- Personal loans
- Student loans
- Other debt and outstanding bills
Add secured debts and unsecured debts. The sum represents your total liabilities.
Always err on the side of caution and assign your assets conservative values. That's because it's easier to inflate their values.
A Net Worth Spreadsheet
Once you determine 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||Second home mortgage|
|Annuities||Credit card debt|
|Life insurance cash value||Personal loans|
|Mutual funds||Student loans|
|Pensions||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 helps speed up the process of calculating your net worth. 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 separate file for your net worth in your file cabinet or on your computer where you can keep all your statements for comparison. Doing so will make it easier and more fun for you 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) suffices 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 because you’ll get the most out of the numbers that way. While you can use a 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 mathematical 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.
New York State Department of Financial Services. "May 19, 2021 Industry Letter: Tangible Net Worth Calculation."