Do you know where you stand financially? The Office for National Statistics (ONS) reports that the UK's average net worth was £293,700 between 2020 and 2022. This figure provides a valuable benchmark, and comparing personal finances to it is a good starting point for deeper financial awareness.
However, beyond simply estimating, calculating net worth provides a clear picture of an individual’s fiscal position. As Experian highlights, a person's net worth offers a quantifiable measure of their wealth and can be used to assess their financial stability through assets and liabilities.
In this sense, acquiring substantial money does not make one financially healthy. Several factors must be considered, including debt, mortgage, savings, and investments—all determined by net worth.
Furthermore, Rob Burnette, CEO of Outlook Financial Center, explains that net worth may encompass assets such as home, jewellery, collectables, and other valuables that often convert into cash, though not instantly.
Seeing that net worth accounts for assets and liabilities, its precise calculation is a complex process that yields a critical understanding of financial health.
Searching for the best way to track net worth? This article provides an easy-to-follow guide to calculating wealth. It also includes a discussion on personal net worth calculators, making finances easier to understand, regardless of experience level.
What is Net Worth?
The Corporate Finance Institute defines net worth as a person's overall financial value, obtained by the difference between their assets and liabilities (Net Worth = Assets - Liabilities). This calculation indicates their financial health: a positive result signifies stability, while a negative one suggests potential difficulties.
With this in mind, it raises an essential question: Why calculate net worth?
Schwab Moneywise highlights two key benefits of determining one's net worth: first, it provides a clear and accurate snapshot of current financial standing, and second, it establishes a crucial benchmark for tracking progress towards achieving financial goals.
Ideally, consistent earning and saving should lead to a steady increase in an individual's net worth. Conversely, a low or negative net worth signals the need for increased savings and reduced spending. However, determining this requires calculating wealth to monitor progress and identify areas for improvement.
Step-by-Step Guide to Calculating Your Total Net Worth
Understanding an individual's net worth is crucial for financial clarity. To help achieve this, here are the steps to figuring net worth:
Step 1: Select a Date
Experian emphasises the fluctuating nature of an individual's net worth. This is particularly crucial for those who intend to track their net worth regularly, providing a consistent reference point for future calculations.
To facilitate informed financial decisions, an individual can calculate net worth monthly, at the beginning of each month. For those with monthly pay, aligning this with their payday routine provides a structured approach. This allows for a pre-spending and saving assessment of their financial standing.
Step 2: List Your Assets
Investopedia characterises assets as valuable items, capable of being converted to cash at a later date. These assets may also generate income or increase in value during the intervening period.
Based on this definition, individuals may now compile a list of all qualifying assets, including:
Cash and Cash Equivalents
- Checking Accounts
- Physical Cash
- Savings Accounts
Investments
- Bonds
- Cryptocurrency
- Exchange-Traded Funds (ETFs)
- Mutual Funds
- Retirement Accounts e.g., 401(k)
- Stocks
Real Estate
- Land
- Primary Residence
- Rental Properties
- Vacation Homes
Personal Property
- Art and Collectables
- Electronics and Appliances
- Jewellery
- Vehicles (cars, boats, motorcycles)
- Watches
- Luxury Items
Preparing a net worth spreadsheet is a good start to simplify the process and ensuring assets are comprehensively listed.
See More: Household Items You Should Invest In
Step 3: Calculate Total Assets
Using current market values, individuals can calculate total assets by summing all listed assets. Consider the following assets as an example:
- A cash worth £1,500
- A savings account holding £5,000
- A vehicle with a current market value of £25,000
- Bonds worth £8,000
- Property appraised at £200,000.
- Shares valued at £15,000
By adding these values (£1,500 + £5,000 + £25,000 + £8,000 + £200,000 + £15,000), they arrive at a total asset value of £254,500.
Step 4: List Your Liabilities
According to Investopedia, an obligation that remains incomplete or unpaid between parties constitutes a liability.
These financial obligations or debts typically include the following:
- Auto Loans
- Credit Card Debt
- Medical Bills
- Mortgage
- Outstanding Insurance Premiums
- Personal Loans
- Student Loans
- Taxes Owed
- Utility Bills
These liabilities must be precisely accounted for and entered on the right side of the net worth spreadsheet to ensure an accurate net worth calculation.
Step 5: Compute Total Liabilities
After the liability inventory is completed, the total liability figure is derived by adding the value of all outstanding debts.
A sample liability is shown below, leading to the calculation of total liabilities.
- Credit Card Debt: £3,500
- Car Loan: £12,000
- Mortgage: £180,000
- Personal Loan: £7,000
- Utility Bills: £1,000
Adding the listed liabilities (£3,500 + £12,000 + £180,000 + £7,000 + £1,000 ) results in a total of £203,500.
Step 6: Calculate Your Total Net Worth
Once the total value of assets and liabilities is calculated, the next step is to find total net worth by subtracting liabilities from assets:
£254,500 (Total Assets) – £203,500 (Total Liabilities) = £51,000 (Total Net Worth)
This figure represents an individual's overall financial position. Remember, a positive net worth indicates that assets exceed liabilities, suggesting good financial health and stability.
In contrast, a negative net worth means that liabilities are greater than assets, signalling potential financial challenges, Farmer State Bank highlights.
Step 7: Track and Update Net Worth
Regularly tracking net worth and updating for current market values provides a clearer view of financial health. This practice enables trend identification, goal setting, and informed decisions for improved financial standing.
Moreover, updating net worth on a consistent schedule, such as monthly or quarterly, ensures it remains a reliable measure of fiscal progress.
Top Tools that Track Your Net Worth
Manually computing net worth can be challenging due to the complexity and time required to track assets and liabilities. It involves gathering detailed information on various asset categories, such as cash and bank, properties, and other investments while accounting for all outstanding debts.
Changes in market values further complicate the process, as assets like stocks or property may fluctuate over time.
Fortunately, the digital age has democratised net worth tracking, offering numerous innovative tools to simplify the process. Discover the leading tools designed to track and calculate net worth below:
Net Worth Spreadsheet
A net worth spreadsheet is a digital tool, typically created in programs like Microsoft Excel or Google Sheets, to help individuals track and calculate their net worth.
The Bricks outlines key features and the purpose of a net worth spreadsheet, emphasising its role in tracking and managing financial assets and liabilities.
- Assets and Liability Tracking: Provides designated columns to list all assets (owned) and liabilities (owed)
- Net Worth Calculation: Utilises formulas to calculate net worth
- Trend Monitoring: Visualise financial progress through graphs
Simply put, a net worth spreadsheet is a practical and cost-free way to build financial literacy by providing a fundamental understanding of assets, liabilities, and net worth.
Net Worth Tracker App
A net worth tracker app is a digital solution for monitoring and managing personal finances, offering a significant upgrade from basic spreadsheets. While both calculate net worth, these apps provide a richer experience with features like:
Assets and Liability Tracking
- Allows users to categorise their assets and liabilities by entering information into pre-set fields, including bank accounts, investments, and real estate holdings
- Many apps offer automatic syncing with financial institutions, eliminating the need for manual input
Automated Net Worth Calculation
- Provides a real-time or near real-time view of financial standing
- The personal net worth calculator app automatically calculates net worth based on the user’s data
Trend Monitoring
- A dashboard with reporting features to monitor financial progress
- Most apps offer charts and graphs to visualise net worth trends over time
Security Features
- Employs security measures to protect users' sensitive financial data
Searching for a net worth tracker app? Here are some leading choices to help in managing finances:
- Kubera
- Mint
- Moneyhub
- MyAssets
- PocketSmith
While some applications may require subscription fees, they often provide advanced, personalised features to enhance each user's financial outlook and goals. Thus, the expense is considered an investment, providing the user with insights that have proven long-term benefits.
Also Read: Best Cash Management Solution: A Complete Guide
Gain Financial Clarity with Net Worth Tracking
Understanding net worth provides a clear snapshot of an individual's financial standing. By following a structured approach—selecting a date, listing assets and liabilities, and computing the final value—one can track their fiscal progress.
To further simplify the process, a net worth spreadsheet or a dedicated net worth tracker app offers streamlined data input and automated reporting, making financial monitoring effortless.
However, periodic net worth assessments are required to manage financial health and enable informed strategic financial planning.
My Net Worth: Frequently Asked Questions
1. How is wealth measured in the UK?
Wealth is typically measured by net worth, representing the total value of an individual's assets minus their liabilities, as referenced in Lyfeguard.
This includes tangible and financial assets such as property, savings, investments, and pensions, offset by debts like mortgages, loans, and other financial obligations.
2. What is the formula for calculating net worth?
To calculate net worth, one must deduct total liabilities from total assets: Net Worth = Total Assets – Total Liabilities.
3. What net worth is considered rich in the UK?
According to research cited by This is Money, an individual possessing £90,000 in bank savings, a mortgage-free home valued at £310,000 or more, and a £627,000 pension pot is considered wealthy.
MyAssets: Your Personal Net Worth Calculator
Do you ever feel like you're in the dark about your financial health? Without a comprehensive overview of total net worth, informed decisions are impossible. MyAssets, a personal net worth calculator, offers a detailed, visual breakdown of assets and liabilities—providing the clarity needed to manage and plan for the future.
With MyAssets' complete asset management platform, users can record financial details—cash, bank accounts, insurance—and catalogue assets like real estate, collectables, and personal valuables, all within a single platform.
Beyond complete asset inventory, liabilities such as mortgages and loans are tracked, seamlessly linking them to corresponding assets and properties. This integrated approach provides a comprehensive view of financial health, ensuring all obligations are accounted for while offering a clearer understanding of net worth.
Ready to take control of your assets? Start managing your net worth today with MyAssets 14-day free trial.
