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Why it's worth knowing your net worth


En español | The term “net worth” may bring to mind CEOs, celebrities, and those on the annual “world’s wealthiest people” list. But when it comes to finances, your net worth is a number well worth knowing — no matter how much money you’ve earned or saved. In fact, calculating your net worth once a year is a great way to check in on how you’re progressing toward your personal financial goals. There’s no time like the present to take inventory of your assets and liabilities.

A matter of simple math

Simply stated, net worth is the difference between what you own and what you owe. To calculate that number, start by taking stock of your assets; the easiest way to do this is to make a list. Begin with cash — the balances of your checking, savings and any short-term investment accounts — then add the cash-out values of IRAs, annuities and 401(k) plans. Next, estimate the market value of your home and car(s). Finally, jot down the value of big-ticket items and home furnishings. Consider using the replacement value of your possessions associated with your homeowner’s policy as a starting point. Or use a conservative estimate of 20 to 30 percent of the value of your home itself.

Simply stated, net worth is the difference between what you own and what you owe.

Add up all these numbers and you’re already halfway there. It’s time to look at your liabilities (or debt) next. Start with large debts such as your mortgage, auto loans, and any student or personal loans. Then include outstanding credit card balances as well as tax or legal liabilities you may owe. Add those numbers together and subtract that total from your totaled assets... and you’ve calculated your net worth.

You found your net worth — now what?

Once you’ve calculated your net worth, you may still be wondering why you should care. Interestingly, your net worth can help you measure your financial progress in two ways:

Assess your assets, list your liabilities

Here’s what to include when tallying your personal balance sheet.


  • Cash in your bank accounts, money market funds and certificates of deposit
  • Value of your investment accounts, including retirement accounts
  • Cash value of any insurance policies
  • Residence(s) (primary and vacation), using conservative market value
  • Automobile(s)
  • Valuables and household furnishings, using fair market value
  • Business interests


  • Mortgage
  • Car or personal loans
  • Credit card balance(s)
  • Student loans
  • Legal or tax obligations

First, for a perspective of how your finances are performing, you can compare your assets, liabilities and total net worth with those of your peers. By consulting online resources, such as the Federal Reserve Survey of Consumer Finances, you can see how your net worth stacks up with national averages — for instance, the median net worth of all U.S. families is $81,200 — or drill down and look at the specific averages for your age group, geographic location, and income level.

Now that you have an idea of where you stand, you should consider updating your net worth statement annually, or more frequently if you experience significant shifts in your financial situation. By tracking personal changes, your net worth can help you identify trends in your own finances year over year, and this is way more valuable than “comparing yourself to the Joneses.”

For example, if you notice that this year’s number is trending positively compared with previous years, you can seek to reinforce and maintain the spending and saving habits that got you there. If it dips, don’t panic — it’s completely normal for net worth to fluctuate from year to year. However, you should use that information to help you get back on track, with these simple strategies:

  • Decrease your debt – Take an honest look at what you owe, and aim to pay down high interest credit cards and other “bad” (non-mortgage) debt first. While this may mean foregoing a new car or shopping spree, the sacrifice can be well worth it when you take a look at next year’s net worth number.
  • Spend less – To get a handle on where your money is going, consider keeping a journal of everything you spend for one month. Then, as you create your personal budget for this year, try to make sure the majority of your spending is going toward “durable” versus “disposable” purchases.
  • Save more – As you become more aware of your spending and budget priorities, consider redirecting the money you save into investments like your employer-sponsored retirement plan, IRA or 529 college savings account.

Once you determine your net worth and the ways in which you can improve your financial picture, you can feel more confident in knowing that you’re taking the right steps to achieve your goals.

Learn more and take action

  • If you are a Merrill Edge customer, take advantage of the Net Worth Estimator™, a tool that can help you calculate your net worth in two simple steps.
  • Want to see more assets in your balance sheet? Increasing your retirement plan contributions is an easy first step. If your 401(k) account is through Merrill Lynch, log on to Benefits OnLine® today.

Merrill Lynch does not provide tax, accounting or legal advice. Please consult your own independent advisor as to any tax, accounting or legal statements made herein.