George Clooney has a net worth of $500 million. Tiger Woods is valued at around $800 million. Author J.K. Rowling, $1 billion. Oprah Winfrey is worth about $3.2 billion. Amazon founder Jeff Bezos’ net worth is about $140 billion.
You’ve likely heard the term “net worth” thrown around when it comes to celebrities and the super wealthy, but what you may not know is how this is calculated. Additionally, by using the formula that we’ll detail in this piece, you can uncover your own net worth. (And yes, you can use the term to describe your financial situation too, even if you don’t travel on a private jet or own your own tropical island.)
Here’s a closer look at how to calculate your net worth and why it’s a good idea to give yourself this financial checkup of sorts from time to time:
How to Calculate Your Net Worth
Essentially, to discover your net worth, all you need to do is add up all of your assets and then subtract any debt you owe from it. Assets can include things like your savings accounts, retirement savings, your home, your vehicles, any additional properties you owe, jewelry and other high-priced valuables. Debts, on the other hand, include your mortgage, auto loans, student loans, your credit card balance and any other loans you’re still paying off (i.e., home equity loan).
Take a moment now and do some simple math to discover your net worth. Is it in the black or in the red?
What Your Net Worth Can Help Tell You
If your net worth is in the red or not nearly enough in the black as you’d like it, don’t fret. In fact, it’s not uncommon at all for people under the age of 40 to have a negative net worth, as mortgages still likely carry a decent balance, student loans may still need to be paid off and retirement savings are still growing. But if you’re unhappy with your net worth – regardless of your age – there are several things you can do about it. It’s easy to say work on saving more of your money and spending less of it, but here’s a look at some other tactics to explore:
- Pay high-interest debt off first: If it comes down to paying off student loans versus credit card debt first, you’ll likely want to choose the credit card debt. That’s because it’ll better your financial situation in the long run. Think of it this way: Credit card interest rates average more than 17 percent these days, while student loans are generally in the 5 to 7 percent range.
- Refinancing may be an option: Whether it’s your home, car loans or student loans, refinancing can save you money long-term by lowering interest rates. Even student loan rates can often be reduced by a few percentage points. The less you pay in interest means the more you’ll pay in principal balance, which will help you pay off balances sooner.
- Assess your retirement savings: Minimally, you should be saving enough in your company-offered retirement account to take full advantage of any match that is offered. If you’re not, you’re essentially throwing away free retirement money. If it’s unfeasible now, make other necessary lifestyle adjustments to attain this. It’ll significantly help you.
- Work hard: Though it may seem like a cliché tip, working hard on your career is key to moving it forward. And as you move forward and onward into better positions, you’ll also be increasing your earnings potential. That means more money to use toward paying off debt, boosting your savings and retirement accounts, and more. Total per-person wealth in the U.S. has increased in every year since 2008, so sometimes improving your net worth is nothing more than a matter of being patient and working hard.
As we noted earlier in this piece, calculating your net worth is about more than just kicks and giggles. It can offer an insightful look into your financial story and help give you that extra nudge that’s sometimes necessary to facilitate real change. Make it an annual habit to assess your net worth and any applicable areas you can make adjustments on to improve it.