Gauging net worth a vital step

If you're like me, you're more likely to know Michael Dell's net worth (about $17 billion) than your own. But calculating wealth is important even if you haven't reached billionaire status.

You need reference points, just like mile markers on a highway, to guide you to financial goals. A net worth statement provides that direction. It is a snapshot of your total assets and debts at a point in time. With it, you can easily track the growth (or decline) of your wealth and make smarter decisions with your money.


Will that car loan drive your debt out of control? Are you gradually building savings, or tying up too much money in a condo? A net worth statement helps you to stay on track. And, when you go to borrow money, you will have all the information at hand to ease the process.



Start with adding up your assets. These consist of current holdings in any cash accounts, such as checking, savings and certificates of deposit.

Then, from the most recent statements, pull the values for any retirement savings, such as a 401(k), IRA, annuity and pension plan.

Also include the market value - what you would get in cash today - of stocks, mutual funds and other investments. For stock options, take the current stock price, minus the strike price, minus taxes. Don't include investments that are part of your retirement plan. You don't want to double count.

If you make premium payments on a life insurance policy, you can add the accrued cash value of those contributions. Do not use the policy's base benefit.

Next, factor in the fair market value of your home, which you can determine by researching the sale price of similar properties in your neighborhood. Real estate agents and local newspapers are good sources. You can also turn to the Web for sites such as CitiMortgage's (, which lets you look up recent home sales by ZIP code.

For car values, consult the Kelley Blue Book (www.kbb.- com) or do research on a sales site such as If you lease, which means you don't own the car, the value is zero.

With things such as electronics, appliances, furniture and other personal property, estimate how much you could sell them for on eBay. Anything more and you are inflating your assets, a common mistake in net worth calculations. If unsure, go with the lower estimate. It's better to discover later that you have more wealth than less.



Now turn to the dark side: your debts. Total the remaining principal on any mortgages, as well as student, car and personal loans. Also figure in credit card balances and any other debt obligations, such as owed taxes (but not future rent or utilities). All of these figures are available on your most recent statements or can be quickly confirmed with a phone call to the lender.

Subtract your total debt from the total assets and you get your net worth.

Young people are more likely to have low or negative values because they are just beginning to pay back school and car loans. Don't get discouraged. The idea is to use the information to guide you toward results that are more satisfying.

But there are some things to keep in mind: To prepare for emergencies, you should generally maintain savings for three to six months' worth of expenses. Holding all of your assets as property could force you to take on more debt when faced with unexpected costs. Keep some cash on hand.

If you carry a heavy loan burden, focus on paying it down. Spending a tax return, bonus or other cash windfall on the latest fashions won't improve your net worth, especially if those loans bear high interest rates.

Overall, run through your assets and debts on a regular basis. Keeping numbers fresh will help you stay motivated. And if you happen to form the next Dell computer behemoth, you'll need to reassess your net worth. Even billionaires have to manage their wealth wisely.


E-mail Carolyn Bigda at