Learning to calculate your net worth should be a simple activity that takes less than 15 minutes a month to do whilst providing significant value for those looking to better understand their financial situation. Alongside the savings rate metric, net worth is one of the most important financial markers you should be measuring regularly.
To calculate your net worth, set up a simple spreadsheet listing all of your assets (home, cash, investments) and liabilities (mortgage, bills) down the left-hand side. Each month, fill in your current position for each of these rows. Add up each of these rows to arrive at your net worth position.
The saying “what gets measured, gets managed” is particularly apt when it comes to working out your net worth. Failing to understand this number sets a poor precedent for the rest of your financial life as it’s difficult to improve something when you don’t know the current position.
In the following post, I will lay out my simple method for calculating your net worth using a spreadsheet tool such as Microsoft Excel or Google Sheets whilst answering commonly asked questions such as the frequency with which you should measure your net worth and which items should be included/excluded.
How to calculate your net worth using a spreadsheet
When people talk about working out their net worth, there is a tendency to overcomplicate this simple metric with complex spreadsheets and confusing rules.
In reality, calculating a monthly net worth figure should be a simple exercise that should take no longer than 15 minutes per month when done right.
Open up your spreadsheet software of choice (Microsoft Excel or Google Sheets) and save a new workbook named ‘Monthly net-worth to get started.
Down the left-hand side of the page, simply list all of your assets and liabilities.
Generally speaking, ‘assets’ are what you own or are owed. Examples of assets include; cash in the bank, your home, your car, investments, your pension, premium bonds, crypto-currency, any property you own, any money you are owed and any equity held in businesses.
Liabilities are what you owe. The most common examples include your mortgage, your monthly credit card bill, loans or money due to family and friends.
In determining what counts as assets and liabilities, I apply the treatments that Limited Companies in the UK would adopt under the recognised accounting standards. This prevents me from trying to create specific rules for myself and I can just defer to what has worked for Companies for years.
Along the top of the spreadsheet, you want to have columns for each period you measure your net worth to see how it grows over time.
How often should you calculate your net worth?
You should calculate your net worth on a monthly basis. This is frequent enough to see changes over time and to make sure you are familiar with your big-picture financial situation whilst not being so frequent that it is a hassle to record.
In the UK, most salaried employees are paid monthly so tracking your net worth more regularly than once per month is unlikely to show much movement each time as the biggest driver of net worth growth for most people will be their salaries.
Once the net worth spreadsheet is set up, updating it monthly should only take 15 minutes which for most people will be a comfortable time commitment to stick to. I would advise putting a monthly calendar reminder to yourself so you don’t forget to update your spreadsheet.
On what day of the month should you record your net worth?
The specific day of the month that you calculate your net worth is not important. What is important is that you do it on the same date each month and remember to actually do it!
It is important to pick the same date each month as your net worth spreadsheet may otherwise give a false picture. For example, let’s say you measured your net worth on the 20th of June and then on the 29th of July. For most UK salaried employees, you will have been paid twice in that period, once at the end of June and again at the end of July.
Because of this, your net worth would have increased by two loads of your monthly salary rather than just one.
I personally update my net worth spreadsheet on the 23rd of each month. I find this day works well for me as I am never paid by my employer before this date so when looking at my net worth growth each month, it is easy to see what has caused the uplift.
How to fill-in your monthly net worth spreadsheet.
Once you have decided which date of each month you will update your net worth spreadsheet, the next step is going through the process of actually filling it in.
Simply go through each row (each one of your assets and liabilities) and add a number against the category. For example, your spreadsheet may look something like this:
|Category||Balance at 23 August||Notes|
|Bank account 1 (asset)||£1,500||Get information from online banking.|
|Bank account 2 (asset)||£10,000||Get information from online banking.|
|Pension account (asset)||£20,000||Get information from your online pension portal.|
|Home value (asset)||£300,000||The value you bought your home for or as per the most recent valuation statement.|
|Mortgage (liability)||-£200,000||Get information from your online mortgage portal.|
|Credit card bill||-£400||Get information from your credit card statement.|
|Net worth||£131,100||Add up all the above numbers.|
In the above example, we can see that the net worth on the 23rd of August is £131,100. Most of this net worth relates to the persons home. They have a home worth £300,000 with £200,000 left to pay on the mortgage. Their home equity is, therefore, £100,000. The remainder of their net worth is their cash + their pension – their outstanding credit card bill.
When filling in each row, it’s crucial to use an accurate source of information. Don’t have a rough guess at how much cash you have in your bank account, look it up on online banking or your physical bank statements and fill in the exact position. There is no point in working out your net worth if you aren’t precise.
A good rule of thumb for this is to imagine that in 6 months time, someone will ask you to prove one of the numbers on your spreadsheet, could you do it?
Remember you are filling in your assets and liabilities at a specific point in time, for me, this is the 23rd of August. Whatever my bank account or pension account says at that date, I fill in the number. You should not be taking just the movements for the month of August, it should be everything you have at that point in time. You’re trying to work out what everything you own minus everything you owe is worth at a specific date.
If you open a new account or have a new category of asset or liability, simply add a new row for this item in and put a 0 for all previous months where you’d didn’t have this account.
Does your house and mortgage count towards your net worth?
Your home and the related mortgage should be counted towards your net worth. Your home is an asset measured at the total price you paid for it or the latest valuation. The mortgage is a liability which is the total outstanding balance due at the point in time as per the mortgage statement.
Many people seem to overcomplicate recording their home and related mortgage on their net worth spreadsheet. For me, the easiest way is to split the value of the home and the mortgage into two distinct lines.
This is coherent with how real estate companies account for their property assets and the related bank loan liabilities.
The value of your home will usually just be the total price you paid for it on purchase as recorded on the completion statement. This number represents the ‘fair value’ of the property as it is actually what someone was willing to pay for it. However, this only really works in the short term, particularly if you live in an area where home prices fluctuate regularly.
The big caveat to this is if you have made capital improvements to the property. For example, let’s say you added a £10,000 loft extension to the property, the property should therefore be worth £10,000 more than what you originally paid for it. This can simply be added to the ‘property value’ line in your net worth spreadsheet or you could simply add a new line called ‘property improvements’.
Please note, these capital improvements aren’t minor things like buying a new tv or couch. It should be structural or significant upgrades to the property only. If the improvement is below £5k in value, it’s probably not worth including in your property valuation.
The other way of recording the value of your property is with reference to the latest independent valuation. For example, let’s say you bought your home 20 years ago in an up-and-coming area for £100k and you think you could probably sell the property for £500k now, it would be inappropriate to record the value at £100k despite that being what you paid for it.
In this case, you can rely on the most recent independent property valuation. However, these only tend to be done when you are looking to sell. If no such valuation has taken place and you deem it inappropriate to record your property value as what you initially paid for it, assign an estimate valuation based on what similar properties in your area are selling for.
For your mortgage, simply record the total outstanding liability at the point in time as per the mortgage statement or your online mortgage portal.
Does your student loan count towards your net worth?
In the UK, you should not count your student loan towards your net worth calculation. As explained by Money Saving Expert, due to the way UK student loan repayments work, student loans are better treated as an additional tax rather than an ordinary loan.
This may seem counter-intuitive as a student loan seems like a classic example of a loan liability which is money you owe. However, as UK student loan holders only repay 9% of any salary over £1,657 a month and the loan is forgiven after 25 years, the reality of the student loan is it is more like an additional income tax for degree-holders rather than a genuine loan balance.
However, if you are in the United States or another location where student loans are treated as normal loans, this item should be included in your net worth calculation as a liability. Simply record the total outstanding balance at the point in time as per your student loan portal.
Should your pension count towards your net worth?
The total value of your pension should be included in your net worth calculation as an asset. Simply look up the current present value of your pension(s) as per the online pension portal and record the figure as an asset at the point in time you are working out your net worth.
For most people, their pensions will make up a significant part of their net worth which should gradually increase as an absolute number and as a % of your total net worth as you age.
It’s worth noting that a pension is a tax-deferred asset which means you can contribute to the pension without paying tax but will pay tax when you start drawing on your pension.
For my net worth calculation, I do not consider the future tax implications on my pension due to the compelling reasons laid out in this blog post by LazyFIDad.
Do you include you car when calculating net worth?
You should include the value of your car in your net worth calculation as an asset. Whilst this is somewhat controversial, I treat vehicles in the same way as the accounting standards for UK Companies do. Each month, I record a car asset in my net worth spreadsheet which decreases each month representing the depreciation of the asset.
To expand on this, let’s say you purchase an expensive car for £60,000 and expect the cars ‘useful economic life’ to be 10 years i.e. the car will be worth nothing in 10 years time. Per the accounting concept of depreciation, you would expect the value of the vehicle to decline by £6,000 each year until it is worth nil at the end of the 10 years.
This means the car depreciates (loses value) by £500 per month (£60,000 / 10 years / 12 months). So when you buy the car, you would record an asset of £60,000. After 1 month, you would change the valuation to £59,500 representing one month’s depreciation.
At the end of 10 years, the car would be recorded as nil in your net worth calculation so the purchase of this expensive car will have a decreasing effect on your net worth over time as it loses value – which feels right to me.
Alternatively, some people simply don’t include their cars in the net worth calculation and this may be the more simple solution for most people.
If you lease your vehicle, you would not include it in your net worth calculation.
What is a good net worth by age?
It’s very difficult to say what is a good net worth by age given it’s so subjective and highly dependent on each individual’s life circumstances. Clearly, it will be much more difficult for someone with 3 children to accumulate the same net worth as a childless individual all else being equal.
Similarly, a good net worth figure is very dependent on your level of spending. For example, if person A has a net worth of 200k but spends 40k each year, they are not necessarily in a better position than someone with a net worth of 100k but who only spends 10k each year. Person A’s net worth would pay for 5 years of expenses whereas person B’s would pay for 10 years of expenses.
I think there are a couple of milestones to look out for when tracking your net worth. I think by age 25, you should be looking to build some wealth and have a net worth of over 20k which should be reasonable with a decent savings rate and a few years of full-time work behind you.
By 30, a stretch goal should be a net worth of 100k+. Having this net worth at this young age would put you in an excellent position to achieve excellent wealth by retirement age.
By age 60 (or your desired retirement age) you want to have a net worth of at least 25* your annual expenses. For example, if your annual expenses are 30k, you would have a target net worth of at least 750k.
It’s important to make the distinction between net worth (assets – liabilities) and invested assets (invested money that earns you a return). Generally speaking, net worth will be larger than invested assets as certain assets like cash and your home don’t earn a periodic return.
Can you have a negative net worth?
It is possible to have a negative net worth. For example, if you own very few assets worth £1,000 in total but have a large credit card bill of £2,000, your net worth is negative £1,000. This should be treated as a financial emergency and remedied as soon as possible.
If you have a negative net worth, you should still track this on a monthly basis. If your deficit (negative net worth) is getting worse each month, you know you will need to change your financial habits in order to avoid disaster. If your net worth gradually increases to a positive position, you can see your breakeven point which can be a motivating milestone for many people.
Which other metrics should you track alongside your net worth?
As well as net worth, those interested in financial independence should track their savings rate which can be defined as the total amount saved divided by the total amount earned in a period. The higher the savings rate, the faster an individual can accumulate wealth.
For example, let’s say you earn £2,000 per month after tax. If you save or invest £1,000 of this and spend the other £1,000, your savings rates would be 50%.
As a rule of thumb, everyone should aim for a savings rate of over 20%. Anything over 50% is great and anything over 70% is extraordinary.
The higher your savings rate, the faster your net worth will grow on your net worth spreadsheet as you will be able to increase the ‘cash’ or ‘investments’ lines of your net worth spreadsheet.
As always, please remember I am an Accountant, but not your Accountant. In this post (and all of my others) I share information and oftentimes give anecdotes about what has worked well for me. However, I do not know your personal financial situation and so do not offer individual financial advice. If you are unsure of a particular financial subject, please hire a qualified financial advisor to guide you.
This article has been written by Luke Girling, ACA – a qualified Accountant and personal finance enthusiast in the UK. Please visit my ‘About‘ page for more information. To verify my ACA credentials – please search for my name at the ICAEW member finder. Please comment below or contact me here to get in touch with questions or ideas for future posts.