How to calculate net worth: My real life (Negative) example!

When it comes to starting to get ahold of your financial picture, there are two places to start. First, I think a budget is important to keep track of your day-to-day spending and begin planning for how to fit in savings for emergencies and retirement. Simultaneous, it’s equally important to know where you “are” in a total financial picture so you can begin to keep track of the direction you are heading financially. We’ve covered how I run our family budget, so this post will be on the basics of net worth calculation. 

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The simple answer is your net worth = (assets – liabilities).  There are various theories/ideas on what all to include in a net worth. I’ll break down three methods I see commonly.

A true total net worth would involve trying to estimate a current value of literally ever item you have possession of, down to every piece of furniture, tool, appliance, etc., which is nearly impossible. But if you were to sell of your entire estate that’s what would be included, or at least a estimate of what your items would bring at auction. Again, nearly impossible to keep track of reliably. 

 What I call a comprehensive net worth is when you  include all items of significant value. These would be things that have a fairly predictable estimate and that can/are commonly “appraised.”  Items here may include jewelry, collectables, firearms, art and furniture, and all vehicles, boats, etc.

Lastly, my favorite and simplest method what I call a simple net worth. This is limited to items that are both of very significant worth, easily appraisable, and not expected to depreciate in value. This would be limited to property/real estate, cash/investments, and investor grade art/collectables/vehicles. 

I use the last method as it is very simple – particularly since I have no collector vehicles or high end art! 

After you’ve tallied up all your assets using whatever method you choose, then you must calculate your liabilities. Liabilities are any and all sources of debt – credit cards, loans, financing, etc. 

So first then, let’s look at my assets:

Assets:Jan 2017
Cash savings$14,525.00
Roth IRA (His)$5,784.00
Roth IRA (Hers)$7,979.00
Taxable investment account$32,111.00
Whole life policy cash value*$13,294.00
Home value (estimated)$185,000.00
  
Total$258,693.00

*The whole life policy has penalties for the next 8 years that would severely limit my ability to access that cash value (you could argue the “actual” value at this time is much lower – why I’m not a fan of whole life). 

 

Next, we break down the liabilities. These are the sources of debt you currently have. While we weren’t always as financially minded, we are lucky to have very few individual sources of debt and especially no credit card debt. 

LiabilitiesJan 2017
Mortgage$165,908.00
Student loans$223,117.00
HVAC financing$2,245.00
  
Total$391,270.00

 

We also have a single auto loan (but two vehicles) – however since I keep track of a very simple net worth I didn’t include either of our vehicle values in the assets, nor am I including the loan as a liability. The cars are worth about $10,000 more than the single auto loan at this point, making it mostly a mute point. I don’t personally include daily driver cars in the calculation because their value can depreciate rapidly and our family tends to keep them for long periods – eventually bringing their worth to very little. Some people include daily drivers, but don’t want to keep track of the Kelly Blue Book every month to get a true estimate for the minor difference it makes. 

 

Therefore, our January 2017 estimated net worth: 

– $132,577.00

 

Much like our budget, I check the above balances and go through the calculations at the end of each month. But before I even started this exercise, I obviously could have guessed that our net worth would be well into the negatives. Why even calculate it? It’s important (and even fun) to see progress on this major financial marker. Many will also base decisions for the amount of life insurance they need and eventually retirement plans off this number. Likewise, you want to make sure you are continuing to make financial decisions that are moving in a positive direction. I even have a few goals attached to my net worth number! Someday (hopefully by mid of 2018) I will cross into a positive net worth. Eventually, (hopefully around age 38), I’ll hit the 1 million net worth mark. Now THAT will be worth celebrating. 

There are also apps out there that will link all your accounts and do this for you. I recently signed up for LinkCapital and found it pretty good, but not perfect – thus I still do this by hand (excel). My major complaint with LinkCapital is that for my MyFedLoan account it only pulls the principle value over (not with unpaid interest) which on my student loans is about $30,000. Meaning LinkCapital OVER estimates my net worth by $30,000. A minor difference to some, but what feels like a major error to me.

Do any other med students/residents/new attendings calculate net worth? Anyone have any drastic differences in how they accomplish this? Add your thoughts in the comments below!


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Lawrence B. Keller, CFP at Physician Financial Services: 
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF has been in the insurance and financial services industry since 1990. Unlike medicine, which has a standardized path that physicians must take to gain the education, training and experience requirements necessary to obtain board certification, the insurance and financial services industry does not. Working with an agent that is familiar with the underwriting of both disability and life insurance policies for physicians can all but guarantee a smooth underwriting process in which the desired outcome is likely. While he might not be a doctor’s first phone call regarding their insurance needs, he is often their last. www.physicianfinancialservices.com

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