Personal Finance – How to Calculate Your Net Worth (Step 1 Most People Skip Before Investing)

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“Am I ready to start investing?”
“Do I have enough savings?”
Questions I get a lot from my friends.

My first response is always:
“Do you know how much money you have now?
What is your net worth? How much money do you want to have?”

Before investing, you must know two things: where you are now and where you want to go.

What is Net Worth?

Net worth is essentially, what you have minus what you owe.

When people say “Elon Musk’s net worth is $342 billion,” they’re simply adding everything he owns and subtracting everything he owes.

In this article, I will show you one of the simplest ways to calculate your net worth, and how to set where you want to be!

Table of Contents

• What is Net Worth?
• Table of Contents
• Step 1: List your assets
• Step 2: List your liabilities
• Step 3: Calculate your net worth
• Step 4: Set your future net worth
• Step 5: Review your net worth
• Conclusion

Step 1: List your assets

Open an excel file and list all the things that you own that have resale value (a.k.a assets) and the current value.

For example:

• Savings
• Cars
• Laptops
• Investments
• Gold
• Property

Then, calculate the sum.

Step 2: List your liabilities

Next to your assets table, write down everything you owe and the remaining balance.

Examples:

• Credit card loans
• Personal loans
• Car loan
• Mortgage

Then, calculate the sum.

Step 3: Calculate your net worth

Take the sum of assets and minus the sum of liabilities and thats it — your current net worth!

Step 4: Set your future net worth

Below your current net worth, create the same assets and liabilities tables for your future vision.
Fill in the amount that you want to reach in the future. It can be in 3, 5 or 10 years.

Now you have a target.

With this, we can start to plan backwards — your investments now will serve a clear destination!

Step 5: Review your net worth

To check your progress, it is important to review and update this table periodically, to know where you are and if everything is according to plan.

Personally, I do this exersice every quarter.
It helps me to reflect on my spending and helps me avoid impulsive purchases as well as a reminder of why I am working so hard.

You’ll be surprised how powerful this habit is — awareness alone changes behavior.

“It’s hard to change your habits if you never change the underlying beliefs that led to your past behavior. You have a new goal and a new plan, but you haven’t changed who you are.”

– James Clear, Atomic Habits

Conclusion

The concept is easy, isnt it?
It might be a lot of work to list everything in the beginning, but once you have done that, it will be a piece of cake!
All you need to do is review and update it regularly!

Many people tend to skip this step and straight away dive into investing. However, knowing where you are now and visualize where you want to be can keep you motivated and stay focus!

Whenever life or work feels frustrating, I remind myself of the future I am building toward and move on.

As Stephen Covey wrote in The 7 Habits of Highly Effective People,

“Begin with the end in mind.”