# What is My Net Worth?

What is my net worth? Some people love to calculate their net worth from time to time. There are others who avoid doing it as ignorance is bliss especially when the truth can be painful sometimes.

Recently, I went to one of my favorite financial blogs, â€œThe Simple Dollarâ€ referring to the same subject and the author Trent, made a big change in the way he calculated his net worth. Previously, he included his home and automobiles which gave him a nice positive net worth. He has decided to eliminate the value of his home plus the value of the automobiles and consequently, this puts him into negative net worth territory.

It depends on your personal choice on how you want to calculate your net worth. The easiest and basic formula is, â€œNet worth = All assets – All liabilitiesâ€. This is what I used to calculate my own net worth. As opposed to Trentâ€™s method, I do include the value of my house, cars as well as other properties in my net worth calculation.

Another method of calculating net worth which is derived from a survey can be found in the popular book â€œThe Millionaire Next Doorâ€ by Thomas J. Stanley and William D. Danko. Their formula tells you what your net worth should be right now based on your age and income.

The formula extracted from the book is:

â€œMultiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.â€

For example, if you are 30 years old now and makes RM50,000 a year and you also have investment returns of RM10,000 a year, multiply RM60,000 (RM50,000 + RM10,000) by 30. You will get RM1,800,000. Divide this amount by ten and you will get RM180,000.

The authors also define which category you belong to in terms of wealth accumulation. By following the example above, multiply RM180,000 by two to get RM360,000 (RM180,000 x 2). If your current net worth meets this figure and above, then you are known as a PAW (prodigious accumulator of wealth). If not, you are either a UAW (under accumulator of wealth) or an AAW (average accumulator of wealth).

I do not have to ask which category you want to belong to. It is normal to want to be known as a PAW, striving to build your personal wealth. Personally, I like the basic formula and I do not worry too much if I am not a PAW as long as my net worth is a big positive number and remains so until I reach old age.

Do you have a personal formula for calculating your own net worth? Do you follow Trentâ€™s method of excluding your house and automobiles as assets?

Reference book: The Millionaire Next Door by Thomas J. Stanley & William D. Danko, 1996 Pocket Books

Read other articles by Jacquelyn at WParent.com on parenting matters and Tips4Everyone.com on solving marriage problems.

• There are amazing ways of calculating net worth value…the net worth remains the same formula for me as total assets + savings + stocks + bonds – total liabilities, I even look at monthly income statement net worth….ie, taking total of (income – expenses)/ income, and to keep healthy month to month, my target is 25%. There are months that i hit 25% and miss, used to be terribly difficult, but lately have been quite impressive.
Why do I do this for ?
Well actually, when we look at our Balance Sheet ie: assets and liabilities, there are some liabilities that is for us to knock off. This helps to improve overall Net Worth (asset – liability) ratio in long term. So the rest of above 25% goes into this budget.
Works well for us….

• my net worth is 39 years of food, 62 years of accommodation and 6 legacies. Not for sale and doesn’t worth a dime.

• Well, it sounds weird if we do not include our house and car(s) into the picture. Our total liabilities inclusive of the loan of these items. If we exclude these “assets”, what shoud we do for respective “liabilities”? Keep them or exclude them?

As of my opinion, they should be included in and to be offset by their liabilities as part of the networth. Also, under the worse scenario, they still can be sold based on their value. They are carrying value, aren’t they?

• In accounting terms, house and cars should be included in the net worth calculation.
It is just that these items don’t contribute income to your cash flow.

• headhunter January 26, 2010 at 5:55 pm

Talking about nett worth i.e. total assets (including EPF, savings, stocks, cars, houses) – total liabilities (including car loans or house loans, etc.)…what shall the value/figure of nett worth be that constitutes a millioanaire? Can a person who owns and is staying in a fully paid house that is worth say RM1.0 million (current value) be considered a miilionaire or must that person have RM1.0 million cash in FD somewhere? Anyone care to suggest? Thanks

• From a book I’ve read, not sure which one they have told a simple rule about house or other property that u own, if you are servicing the loan and still have balance to pay for it at the same time that house/property is not giving any additional income to your cash flow it is liability.. doesn’t matter if it worth more than your outstanding amount, this cannot be considered as an asset. It should be on your liability column. The logic is, if something bad happen and you unable to pay for ur loan or something like that, the house is no longer yours, it’s the bank property.

Unless the house is fully paid or you are earning something from it, which is higher than your repayment for example of a an investment in Mont Kiara, then it is an asset for you and you may include this in your net profile.

Just something to share, maybe KC can explain more on this in his next post.