Do you know how to calculate net worth correctly? Most people assume it’s just a matter of adding up how much money you’ve got — but those people would be wrong. And I’m embarrassed to say it, that’s how I used to think it worked too back in the day.

Almost one full year ago, I signed up for the Personal Financial Services Advice course through the Canadian Securities Institute. I fully intended on doing the readings and taking the exam before Christmas break — but clearly that didn’t happen.

Life caught up with me, I got busy with other projects, and now here I am, sitting in my disgustingly hot apartment, frantically preparing to take the test before my course expires in a few weeks.

Why figuring up your net worth is a good idea, plus a free net worth spreadsheet.On the upside, I’m learning some really interesting stuff. Well, boring and interesting if that makes sense. I’m not learning magic tricks at Hogwarts here, I’m learning about macroeconomics and compound interest.

Although the course is a bit dry, there is a ton of valuable information in it that I now want to pass onto you in hopefully a more digestible and interesting way. So, for the next few weeks I’ll be sharing the best takeaways from this course so we can all become more financially savvy together!

Why You Need to Track Your Net Worth Every Month

Today, I’ll be breaking down how to calculate net worth and all the steps involved. Something that you should be doing at the same time you go over your monthly spending and checking up on your budget.

Easier said than done, I know. My husband and I still struggle with this because, again, life always seems to get in the way. Plus, let’s be honest, squaring away an hour to look at your bank accounts, old receipts and credit card statements once a month isn’t exactly something you look forward to. It’s always great afterwards when you have a clearer picture of where you stand financially, but it’s still never fun.

Nevertheless, it’s an important part of staying on track with your money, so make sure you include noting down your net worth every month.

What Your Net Worth Actually Means

Do you know what net worth means? I’m not trying to talk down to you, I’m straight up asking. I thought I knew, but it’s more than just adding up how much money you have in the bank and subtracting your mortgage and student loans. Simply speaking, your net worth is how many assets you have and how many liabilities you have. But going further, there are actually 3 types of assets and 2 types of liabilities.

Liquid Assets

The most commonly known assets are liquid assets. These types of assets include cash, balances in your chequing or savings accounts, cash you get when you cancel a permanent life insurance policy, short-term investments (e.g. GICs that mature before one year), treasury bills and Canada Savings Bonds. As you may have guessed, liquid assets are classed as such because they are the most easily converted into cash.

Investment Assets

Investments assets however are assets that are invested for longer periods of time and aren’t that easily converted into cash. Examples include GICs (with terms longer than a year), stocks, bonds, mutual funds, real estate (a rental property or land), options and futures, and gold, silver and other precious metals and gemstones.

Personal Assets

Last but not least, personal assets are things that you have that can be sold for cash such as your house, vacation home, car, furniture, jewellery and collectibles.

Short-term Liabilities

In terms of debts you owe, the first type of liability is short-term liability. It’s a debt you owe that you are expected to pay off within a year. This could be credit card balances, personal lines of credit, regular housing costs (phone bill, hydro, hot water), rent, property taxes and income taxes.

Long-term Liabilities

Long-term liabilities are debts you owe that will take you longer than a year to pay off, like your mortgage, loans for investments and student loans.

This Is How You Calculate Net Worth

The math is pretty simple when it comes to calculating your net worth.

Assets – Liabilities = Net Worth

The tricky part is placing a value on your assets and liabilities.

Valuating Your Assets

To find out the value of your liquid and investment assets, you need to record their current market value (how much a buyer will pay for that asset today). So, for your liquid assets you may just need to add up your chequing and savings account balances. For your investment assets, you’ll need to find out how much cash you would get if you sold your investments today.

It’s a bit different for personal assets. To find out how much they are worth, you need to record their depreciated value, which is its original price tag minus wear, tear and possibly age. For example, we all know cars start depreciating in value as soon as they leave the dealership, so say you bought your car for $16,000 less than a year ago, you’d probably get $14,000 for it if you tried to sell it today.

Valuating Your Liabilities

For liabilities, they should all be recorded at their current market value, which would mean the current balances owing on those debts (how much debt you have left to pay off). This number also shouldn’t include any future interest payments, simply just what you owe now.

What’s Your Net Worth?

I was thinking of just ending the post here, since that’s pretty much all you need to know. But then I started thinking…wouldn’t this be a nice spreadsheet to share? So, I spent a bit of extra time to make you this net worth spreadsheet you can download for free. Similar to my budget spreadsheet, it’s super easy to use and all you really have to do is plug-in your numbers. Enjoy!

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