How to calculate the self net worth and how to track it over time

How to calculate the self net worth and how to track it over time

Now could be one of the most depressing times to be looking at your net worth, given the current state of investable markets and the greater economy. And while I haven’t paid too much mind to my net worth in the past, I think it’s a great figure to track over time to monitor your financial growth. If you’re interested in calculating and tracking your net worth, we’re going to do exactly that in this article.

We’ll start with the simple formula for calculating your net worth, and then I’ll walk you through the spreadsheet I’ve created to track it automatically over time. Then, we’ll take a look at the average net worth values by age and income so we can see how we’re doing compared to the rest of the population.

Finally, we’ll go over some simple tips for increasing your net worth and surpassing the metrics for your age or income bracket.

How to Calculate Your Net Worth

Calculating your net worth is pretty simple, as it’s just the value of what you own minus how much money you owe. In more financial terms, it’s your assets minus your liabilities. Your assets include cash and all of your liquid assets, such as investments. Investments can include stocks, cryptocurrency, and retirement accounts like 401ks and IRAs.

You can also choose to include your car or your home if you own one. You could, in theory, include other things of value too, such as fine art or collectibles that are liquid enough to sell quickly if you needed to. On the other side of things, your liabilities include any debts that you owe, such as student loans, credit card debt, auto loans, and the mortgage on your home if you have one.

Net Worth Spreadsheet

And that’s it – once you’ve added up all the numbers, the difference between the two is your net worth. An interesting thing to note here is that net worth calculations completely ignore your income, which is a huge factor that we’ll talk more about later in this article.

There are a ton of net worth calculators out there if you want to quickly determine your current net worth. But as I mentioned earlier, I want to track my net worth month-to-month and year-to-year to get a visualization of my financial growth over time. And to do this, I’ve created a spreadsheet where I can log all of my numbers and chart my progress.

Net Worth Spreadsheet

I have 3 different components here. First, I have the assets section. Here, I’ve added up all of the cash in my bank accounts. I added up all of my normal investing accounts for the stocks section and separated my retirement accounts into different section which includes a Roth IRA and my 401k.

Then I added up the current value of my cryptocurrency investments, and finally, looked up my car on Kelley Blue Book to get an estimate of its current value. I don’t own a home, I rent, so that section is left at 0, and I don’t think I have anything else worth adding up here for assets.

Net Worth Spreadsheet 2

The next section is the liabilities calculator. I’m lucky enough that I don’t have student loans and I always pay off my credit cards in full, so those are both at $0. Again, no home, so no mortgage debt either. I have some personal loans taken out for investing, which for more context, I have mostly sitting in cash so that I can put it into investments if the market gets really bad.

Some of it I have already invested, but in any case, this will offset some of the cash, stock, and cryptocurrency balances I have in the assets section. I’ve also got my auto loan here, which cancels out some of the value of my vehicle since I don’t own it in full.

Finally, in my “other” section, I’ve taken out some loans against my Bitcoin, so that’s where that value comes from. I’ve definitely come to regret these because of how much the market has fallen.

Net Worth Spreadsheet 3

After filling out both of these columns, my spreadsheet calculates the totals and determines the resulting net worth. With all of the numbers considered, I have a current net worth of just under $50,000.

So what I’ve done after this is create a table for logging all of my net worth calculations. I plan to update this monthly, although you can come in here and do any frequency you feel like tracking. By simply copying and pasting the monthly values of the asset, liability, and net worth calculators, the spreadsheet will graph the changes from month to month.

Net Worth Spreadsheet graph

At first, you’ll just have a single point on the graph, but after inputting data for additional months you’ll see a nice line chart start to form. Instead of only tracking your net worth, which is the line I have in blue, I am also charting asset and liability values because I think that will also tell an interesting story. This is because, as we’ll talk about later, you can increase your net worth by either increasing your assets OR decreasing your liabilities, so I think it could be helpful to watch how both of these values change over time.

Calculate Net Worth by Age

If you want to gauge how your net worth stacks up against others, one way to do it is by looking at the average and median net worth values for different age groups. This data is collected and published by the federal reserve every 3 years, with the last batch of data coming out in 2019. We are due another one for 2022, but unfortunately, it won’t be released until 2023.

Calculate Net Worth by Age

So while this isn’t the freshest data we have, it’s all we got to work with. Furthermore, the latest data from the St. Louis FED shows that overall household net worth has increased quite a bit over the last three years, so the numbers we’re about to look at from 2019 might indeed be a bit lower than they would be today. Nonetheless, here’s how the 2019 FED data shakes out.

Calculate Net Worth by Age 2

Unfortunately, the youngest age group is 35 and below – so there’s a ton of wiggle room here for people in their 20s to catch up to these metrics. The average net worth is about $76,000, with the median being about $14,000. For those who haven’t been in school for a while and need a refresher, the average is simply all of the data points added up and divided by the total number of data points, while the median is the value if you sorted everything in a list and picked the absolute middle.

With these net worth metrics, all of the averages are way above the median values. This shows that there is a huge spread of high net worth individuals that make the average look higher than it actually is for the majority. So if you don’t reach that average net worth, don’t be too concerned. The median shows the middle 50% of all the data, so you know if you’re higher than that figure, you’re at least further along than 50% of people.

These numbers increase pretty aggressively towards the 35 to 44 age group, with an average net worth around $436,000 and the median at $91,000. These numbers continue increasing towards retirement age, where presumably having tax-sheltered retirement accounts contributes a large amount to overall net worth. That is until you start withdrawing from them to fund your lifestyle in retirement, where we finally see net worth start to decrease.

Calculate Net Worth by Age 3

While looking at the data by age can be one indicator by which to compare your financial health, it’s not the perfect indicator. Age only tells part of the story, and it ignores the fact that net worth has huge disparities when considering race… education level…. And home ownership. That’s why we need to add another metric into the mix.

Calculate Net Worth by Income (Best Formula)

And that metric is your income, which is probably one of the most important indicators of what your net worth should realistically be. After all, your income directly influences how many assets you can buy and how little you’ll be limited by debts. For this, there’s a metric offered by the authors of The Millionaire Next Door.

The formula offers a target net worth based on your age and your income. It’s simply your age, multiplied by your income, divided by 10. However, this formula has some shortcomings because it doesn’t account for how long you have been saving, so younger people will have a much higher target net worth than is feasible. This put my goal net worth at over $250,000, which is 4 times higher than the average net worth of my age group.

This formula ignores the fact that I’ve only had a few short years to start saving and building my net worth. So, there’s a better formula we can use that will give us a more accurate goal to work towards. This formula tweaks the previous formula we looked at based on a few assumptions.

One is that net worth is used to gauge your progress towards retirement. Once you reach a certain net worth, you may be able to retire comfortably. So we’re going to anchor our calculations around the retirement age of 65 years old. The second part of this is the amount of money you should have saved at that age based on your income and lifestyle requirements.

There are a ton of estimates out there for this, but most suggest somewhere between 10 and 12 times your annual salary. We’re going to go with 12 to buffer on the higher side of things – better to aim too high than not high enough.

Calculate Net Worth by Income

So our new formula is crafted to give you 12 times your salary at the age of 65. The formula is target net worth = your age, minus 25, times your annual salary, all divided by 3 ⅓. We’re subtracting 25 from the age here because most people don’t start saving until their mid-20s, so this will show younger people a more realistic target number to account for fewer years of saving.

Sure enough, if we plug 65 years old into this formula, we’ll get a net worth target of 12 times our salary at any income level. If I plug in my current details, I get a target net worth of about $31,000, which shows I’m actually on track for retirement at 65 with the savings goal we identified.

Calculate Net Worth by Income 2

Furthermore, I can map out my target net worth rates for the future based on our age and our estimated income level at those times – Click Here for all of these calculators which are available in the spreadsheet so that you can edit the values and determine what your net worth goals look like.

How to Increase Your Net Worth

So by now, you should have an understanding of how to figure out and plan your net worth, and increasing it is pretty simple based on the input metrics. You either increase your assets or decrease your liabilities. Increasing your assets means investing more, preferably in things like stocks, crypto, or retirement accounts that can grow over time even after you put money into them.

Decreasing liabilities means paying down debt, especially things like credit card debt and loans that aren’t enabling you to acquire more assets – although generally, it’s best to avoid taking on debt to acquire assets unless it’s something like a mortgage.

Ultimately, however, I think it’s important to remember that net worth is more of a vanity number than anything. It’s a fun number to track and I think it can be helpful for charting your financial growth over time. But, it ignores your income and monthly cash flow, which are really important items to consider when you’re planning for a lifestyle where you don’t have to work.

I think tracking your net worth is best used as a progress indicator towards retirement, assuming your plan is to retire at the average age of 65 with the recommended savings rate of 12 times your salary. If your financial plan strays from the norm in any way, you may need to use a more unique formula to plan for the future. In any case, growing your income is going to be the fastest way to increase your net worth because you’ll have more money to put towards accumulating assets and eliminating liabilities.

Disclaimer: This article is meant for informational purposes only, and is not a recommendation to buy or sell any security or cryptocurrency. It is also not a research report and should not serve as the basis for any investment decision

Also Read:

How To Build a $1 Million Stock Portfolio With $0

10 Money Mistakes to Avoid That Will Totally Make You Broke 

8 tips to protect your cash flow as a landlord

10 Tips To Stop Spending Money On Things You Don’t Need

10 Tips to successfully buy a home and avoid home buying mistakes

10 Credit Cards Tips You’ve Never Heard Of

How Rising Interest Rates Affect Your Investment for Early Retirement

9 Golden rules of money and how to put them into action

Leave a Reply

Your email address will not be published.