Your net worth is a great number to know if you’re trying to gauge your overall financial health, especially if you have a financial goal you are working toward. Consisting of the sum of your assets minus the sum of your debts, it gives a general idea of how much you are worth.
The issue with using your net worth as a tool to know how much money you have is that it contains all your assets – including liquid assets like cash in the bank and things like your home, car and other personal items with value. Your net worth isn’t how much you can afford to spend.
For this reason, many financial experts disagree on how exactly to calculate net worth and what to include. Your home, particularly a primary residence, is one asset some say you should exclude. Because you need a place to live, the likelihood that you’ll ever liquidate that asset is low.
That said, many financial experts argue that your equity in your home is an important part of your net worth calculation.Some say you can calculate your net worth in different ways for different goals.
What is Net Worth and What Does It Include?
“Net worth consists of everything you own (your assets) minus anything that you owe (your liabilities),” Baylee Bryant, a certified financial planner and wealth manager at Merit Financial Advisors, said in an email.
But exactly what assets should be included? That’s where some experts disagree. Generally, though, assets can be divided into three categories, says Nicole…
