What To Include In Your Net Worth?

It’s no secret that we actively track the PoP net worth, and find it very motivating to do so.  And since we’ve been doing it so long, it takes me about 5-10 minutes to update it each month.  But sometimes when you’re just starting out figuring out what goes into your net worth calculations and what you probably want to leave out isn’t 100% straightforward.  So we’ve got a few rules of thumb that we use.


Quick Net Worth Review: 

I think some people get afraid of calculating their net worth because they are afraid if it’s too low (or negative) that it means they are not worthwhile in the same way that someone whose net worth is positive might be.  NOT TRUE.  Your net worth is not an indicator of your worth as a person.  (Read that a few more times if it didn’t sink in.)  Dollar values cannot be placed on love, moral compasses or friendship, and none of those play any role in the net worth calculation.

At its heart, your net worth calculation is just a measure of the monetary value of things.  It is found by adding up the value of everything you own (your assets) and subtracting off the value of all of everything you owe (your liabilities).

Net Worth = All of Your Assets – All of Your Liability

Since no one wants to start by taking inventory of their sock drawer, where do we start?

Must Include All Liabilities

Get the painful stuff out of the way first.  Since underestimating your liabilities is only going to fool you into over estimating your net worth, so include every last cent you might owe.

  • Secured Debt – mortgages, car loans, boat loans, all of it
  • Unsecured Debt – student loans, credit cards (even if you pay it off in full every month – include the current balance), personal loans, outstanding bills and payment plans
  • Leverage – if you’ve used leverage in a brokerage account, you have technically borrowed from your broker, so be cognizant of this!

You may even have more liabilities than those I mentioned here.  Rack your brain and make sure you’re not forgetting about $5K that your parents are expecting to be paid back or an outstanding bill to your dentist!

Assets Have More Flexibility

Excluding an asset is going to underestimate your net worth, which is far less serious an error than overestimating it, so you get a bit more leeway for choice here.  But we consider four categories “Must Include” for assets.

Must Include Assets

  1. Cash and Cash Equivalents – Here I’m talking about all checking accounts, savings accounts, retirement and other brokerage accounts that can be relatively quickly turned into cash in your pocket if necessary.  Everything that you get a statement from, with your current value.  I’d also include here things like a cash out value for a pension or an annuity.  If you’ve got a “whole life” insurance policy, that should have a cash out value like a pension, so you can include it here as well since it is technically an investment.  I highly recommend putting all of these accounts into a central place like mint.com so you can login with 1 username and password and see the balances of them all at once.
  2. If There’s a Liability To Match It – If you’ve got a home loan or a car loan, you definitely want to include the values of the home or car in your assets to balance out those liabilities.  For cars, we suggest kbb.com.  For homes, Zillow sucks, but you can use it as a first pass.  A better way is to complete your own market comparable analysis to determine your home’s value.
  3. If There’s A Strong Likelihood That You’ll Sell It – We don’t owe anything on Mr. PoP’s car, but we still include it in our net worth since its value is high enough that we would sell it to roll the value into his next car if we needed a different car.
  4. If You Have To Pay Taxes On Its Value Regularly – This is kindof an extension of #2.  Taxes on property, homes, registered vehicles, boats, etc are all liabilities in a sense so you should include the assets that incur these liabilities.

Optional Inclusion: “Couch Cushion Assets”

Much like the change that you might be able to find in your couch cushion, a couch cushion asset is something that you technically own, but since it’s not in a bank account, you don’t really account for it.  They tend to be hard to really know exactly how much they are worth, but if push came to shove you could get some value out of it by selling.

We tend not to include any couch cushion assets on our balance sheet, but if you’re short on big assets and don’t want to feel quite as dire, look around at some of your own couch cushion assets.

Some of our couch cushion assets are:

  • Mr. PoP’s old car that currently resides in his parents’ barn.  It’s too old to track the value on kbb.com, and we don’t have it registered anymore, so it’s not costing us anything to leave it there… but it could probably be sold for $1K… maybe?
  • Family Heirlooms/Furniture/Jewelry – Since Mr. PoP was very much raised in a “buy it for life” household, a lot of the hand-me-down furniture and family heirlooms that were gifted to us are probably worth something, but we have no intention of ever liquidating these, so we don’t like to include them.


Don’t Include: Expected Future Earnings/Value

If you’re just starting out, it can be really tempting to want to offset student loans with the present value of expected future earnings.  But as tempting as that may be, you cannot sell your education to someone else in the same way you can sell them an antique piece of furniture.  While it has value to you, that value is not directly transferable without your own efforts.

In much the same way, even though the discounted cash flow (DCF) analysis of our duplex tells us that the present value of the cash flow it will generate is much higher than the current market comparable sales, if we were to list it for sale, it would be the current market comparable sales that would determine the price, not our DCF analysis.

So that’s it.  I know it can sound like a lot when you do it the first time, but the truth is, once you get in the habit – it takes just a few minutes to update it once a month.  And it is a huge motivator in keeping us on track financially.

So who’s going to give it a try and calculate their net worth this weekend?  Let us know if you succeed!  And don’t hesitate to ask questions in the comments if you need any help!  


40 comments to What To Include In Your Net Worth?

  • For retirement savings account like 401K and IRA, I like to take the value you can realize, so I typically take 10% off as penalty and the tax I would owe on the money if I was to withdraw it. So reduce the amount in such account from 10% to 50% to include in your Cash.

    For Roith IRA, you can take the full money as it goes after post tax contributions.
    Rohit @ The Money Mail recently posted..Roth IRA ConversionMy Profile

    • We don’t do that since equal treatment would require doing the same with all equity in real estate with capital gains taxes, etc. Since tax rates aren’t all that stable, it’s easier to consider them as though they would be paid from any draw downs as we take them.

  • We calculate ours every once in a while. I try not to track it too close….because I like to be pleasantly surprised when I do calculate it a couple of times a year!

    Have a great weekend!
    Holly@ClubThrifty recently posted..The VIP Club Roundup – 12th EditionMy Profile

  • We calculate ours monthly, but really don’t spend a lot of time focusing on it. We look at it more seriously several times throughout the year.
    John S @ Frugal Rules recently posted..Frugal Friday: Posts That Ruled This Week, Christmas is in Two Weeks Edition!My Profile

  • I calculate our networth quarterly. Actually being an mba student and working in finance, i tend to track my finances in my head. I am usually within a few dollars on all of my account.

    Aside your link to networth at the top doesnt link.
    Christopher @ This that and the MBA recently posted..Christmas Is Inching Closer: Buy Gifts For ChildrenMy Profile

  • Just curious why are you keeping that old car in your inlaws barn. If it sits too long it make loose the little value it still has left.
    Mandy @ MoneyMasterMom recently posted..Our Family Expenses for November 2012My Profile

  • Seth

    I would also include cash value of life insurance on there as well because it is something a person is building equity in and can be used as collateral. Another number you can include is an investment in a closely held business. Many people will include investment in a closely held businesses on their personal financial statement, but this number is more subjective.

    • Good point – equity in a business is hard to value sometimes, but can be a big part of the net worth of someone who is a partner in a small business. Sometimes there are specific buyout rules in the articles of incorporation that can give a good basis a to the value of shares, though.

  • Seth

    My bad, I see you have cash value of life insurance on there.

  • Jonathan

    We’ve been tracking NW monthly for 2 years now. I love the big picture view of our finances it gives us. However, we have actually seen a slowdown in the rate of growth over that time. Major changes in that time have been the purchase of two new rental properties (a net negative – I base their value on purchase price and don’t include fix-up costs, so there’s a NW cost to acquiring them), rental income from the two new properties (a positive), raises at my job (a positive), and the fact that we’re giving far more to charity (a negative). I think we also are generally spending a little more freely than we did 2 years ago, though we do a pretty good job keeping lifestyle inflation in check. But the great thing is, without NW tracking, I wouldn’t even have a good idea of what effect these various things have on our finances!

    • Depending where it was when you started tracking, a slow down in the rate of growth makes total sense. It’s pretty easy to get 100% growth in a year if your net worth started at $1. =)

      Rental properties are something that’s tough because the detail oriented person in me *wants* to record the present value of the future cash flow, but I know the more accurate way to do it is with the market price (which you’re right – might not be impacted with fix-up costs immediately).

      What are your rentals like?

      • Jonathan

        I may have misspoke when I said slowdown in the RATE…I actually meant that the average dollar-amount increase month over month has gotten slightly smaller over the past 2 years, despite increases in both wage and rental income.

        Our rentals are new (less than 10 years old) SFHs – 3 bed, 2 bath, about 1,600 sf on 6,000 sf lots. So far we’ve not had any tenant turnover or any real maintenance issues.

        • Ahh, so lifestyle inflation may be creeping up a bit? Hopefully the tracking will keep that in check somewhat.

          The rentals sound great, especially the no maintenance issues. But that’s a pretty big house on a little lot, right?

  • Ivy

    I wasn’t tracking it at all until recently, but I did track investment allocations monthly, so a few months ago I just “extended the formula” and calculated the net worth
    However, I am not including credit card, which is paid in full every month, and checking account, where we keep just enough balance to pay the monthly bills. This may not be entirely precise, but I think of these more as “working capital” rather than true net worth elements

    • As long as your checking and credit card balances are pretty close, you’re probably well within the ball park of accuracy.

      Do you use mint or anything like that to track the accounts? That would automatically include checking and credit card balances in its net worth equation.

  • I track mine monthly, but instead of one line for mortgage and one for house value, I put the amount of house that I have paid for on assets. I change the house value once a year or less. And I don’t put car or motorcycle.
    Pauline recently posted..Friday recap, home alone and seven new friends!My Profile

    • So you basically net out the mortgage from the house value in your calcs. Makes total sense and is mathematically equivalent =)

      Just curious… Why don’t you include the car or the motorcycle? Are they worth so little? Or do you not have to pay registration fees on them yearly the way we do in the US?

  • So I just use Mint to track my NW. I’m always surprised when people don’t know their net worth. Just enter your account info into Mint.com and it will automatically updates your NW. It even grabs the Zillow Estimate for your house. Then you can take a peak at your NW by hitting two buttons on your phone whenever you want.

    • Mint is a great tool – though I have my own beef with the Zillow estimates so track our home values on a separate spreadsheet.

      And you’re right about hitting a couple of buttons on your phone (though I would suggest locking the mint app so it takes 4 more button clicks!) to check is huge. Ever since ours topped $400K on mint, Mr. PoP gets a kick out of it – though I get my bigger kicks out of seeing our HELOC balance drop. =)

  • […] What To Include In Your Net Worth? on Planting Our Pennies […]

  • Great post,
    We track and post our Networth Update every month as well on our blog but one thing we have never done is include what is actually inside our home. We have lots of items we could sell inside the home but never really thought to include them. I wouldn’t know where to begin really but for the most part I could research or ball park the items if I had to sell them. For now, I’ll keep them off and see where this leads us. Cheers Mr.CBB
    Canadian Budget Binder recently posted..The Saturday Weekend Review #8 DecemberMy Profile

  • Last year I started tracking ours on a quarterly basis. But that just meant we were slow to change when things didn’t go the way we wanted to. This year we’re going to do it monthly so that we can quickly fix any problems that arise.
    After the first time it becomes easy because all you have to do is record your balances of your accounts and check the value of big assets once a year or so.
    Justin@TheFrugalPath recently posted..Friday’s Fork in the Path: What’s Worse? Exam or PresentationMy Profile

  • I have recently started tracking net worth. I’ve had to do it a few times for business credit and it was always very depressing as we started at around $750,000 in the hole about ten years ago with student loans, credit cards, mortgage, and business and commercial property loans. I believe I may include it on the blog. It seem that whatever I put out for the world to see makes me work that much harder to stay on track. I do wonder how to categorize my business. I am selling it at the end of the year, but will be acting as the bank with seller finance of the loan for the buyer. I’m guessing I should only include the remaining balance as an asset?
    Kim@Eyesonthedollar recently posted..Can’t Take My Eyes Off These Blogs #17-Game Of Life EditionMy Profile

    • Putting it out there definitely keeps us more on track, I think.

      As for how to value your business after you sell it using seller financing, tomorrow’s post here actually might be really helpful as it’s all about DCF (discounted cash flow) analysis. Basically it’s a way to figure out how to understand what a stream of future cash flows (like the payments you’ll receive) is worth to you today. Stop back tomorrow, and let me know if it looks like it could work for you!

  • […] Mrs. Pop from Planting Our Pennies explains what to include in your net worth statements. […]

  • I try and include nothing but liquid cash to keep myself motivated. It’s too easy to include my properties and other hard to value assets b/c of liquidity issues.
    Financial Samurai recently posted..Desire Is The Cause Of SufferingMy Profile

    • Leaving out the property as an asset could definitely have a big impact – though I wouldn’t leave out any of the loans you might have against it. Leaving out both when you’re underwater would only artificially inflate your net worth.

      As for properties being tough to value, I don’t know what type of properties you have, but I tend to disagree. What type of real estate do you have that is so tough to value? Market comps on residential (even multi-family residential) are really straightforward much of the time – I keep track of our own comps for our real estate.

      Check this out – http://www.plantingourpennies.com/2012/07/09/determining-a-homes-value-part-1/ Part 2 goes through an example of comps on our house.

  • Like FS said above, I don’t include my property b/c it’s too hard to calculate the exact value. And obviously the price can vary too.
    Harry @ PF Pro recently posted..December Deals & Steals and a Blog Link Round-UpMy Profile

  • […] What To Include In Your Net Worth? on Planting Our Pennies […]

  • […] What to Include in Your Net Worth? – Planting Our Pennies […]

  • Angie

    I’ve been tracking my net worth monthly for years but recently have been considering adding our HSA accounts. They are assets and I think should be included but I can’t track them through Mint (yet – I hope that changes!) so it is logistically more difficult.

    • We don’t add our HSA and flex accounts because we treat them as transient accounts that we get reimbursed from. Flex is use-it-or-lose-it, and Mr. PoP’s HSA so far only has his employer contributions, so its balance is pretty small.

      Do you treat the HSA account like an investment account? I’ve heard of people that do because of its tax-preferred status, if they are done maxing out 401Ks and IRAs, but we’re not quite there yet.