Personal net worth: how to calculate it, with an example that balances

In short

Personal net worth is everything you own minus everything you owe, measured on a date. Accounts, investments, your home and your car go in at a documented estimate on that date. For debts, what goes in is the outstanding principal, not future interest. Your checking account balance is just one of the items.

This page accompanies lesson 3 of the free video course "Double-entry bookkeeping, step by step". The amounts are examples from Anna's family story, which we follow throughout the course, and they're the same ones you see in the video.

Watch the lesson

The lesson lasts about seven minutes. Below you'll find Anna's snapshot on 1 March in a table, the seven opening entries with their totals and, at the end, the transcript.

Same balance, different net worth

Anna has $5,000 in her checking account. Now picture another person, made up just for this example: she also has $5,000 in her account. Same balance.

But she also has a car worth $9,000 and a loan of $16,000.

Hypothetical, outside the story · the made-up person

She owes more than she owns. Anna, with the same balance, has a home, a mortgage and an investment, and her net worth comes to $97,200.

The account balance is just one line on the list. Net worth is the whole list: everything you own minus everything you owe, on a specific date.

A position with a date

Sailors have a name for it: a position fix. It's the exact position of the boat on the nautical chart, with the time written next to it. Without the time, it's no use, because the boat keeps moving.

For your money, the position fix is the list of what you own and what you owe, with its date. An accountant calls it a balance sheet. It's a snapshot, not a film.

Anna's is dated 1 March, the day she decides to start keeping her accounts.

What Anna owns

First column: the assets, meaning everything Anna owns.

Anna's assets on 1 March

An ETF is a fund you buy and sell on the stock exchange. It can track shares, bonds or other things.

Who says what it's worth?

The bank balance is a precise number. The home and the car aren't: someone has to estimate them. That's why every value comes with a source and a date.

Anna paid $30,000 for the car. Used-car listings say it's worth $18,000 today, so $18,000 is what goes in. The price she paid is history.

Every estimate is a documented estimate on a date, not the exact value. You'd only find out the exact value by selling.

What Anna owes

Second column: the liabilities, meaning what Anna owes.

Anna's liabilities on 1 March

For the mortgage, what goes in is the principal still to be repaid, as shown in the bank's repayment schedule. Not the total of the payments still to come: those payments also include future interest. That interest isn't a debt today. It will become an expense, month by month, as time goes by.

The subtraction that balances

$233,200 minus $136,000 is $97,200. That's Anna's net worth on 1 March. Accountants call it equity.

Now let's put it in columns. On the left, the assets. On the right, the liabilities and, below them, equity.

Anna's balance sheet on 1 March

The two sides are equal by construction: assets equal liabilities plus equity.

Equity sits on the right, but it isn't a debt. The right-hand side tells you where the value on the left comes from. Part of it was put in by the lenders, the people who lent Anna the money. The rest is Anna's.

Where this number is written

In double entry, net worth isn't worked out on the side: it's recorded. On 1 March, Anna records every account against an equity account. In Cashfulness, the app I built to keep household accounts in double entry, that account is called Opening Balances.

Here's the home. Home increases, and it's an asset: Debit. Opening Balances increases, and it's equity: Credit.

1 March · opening the home

The mortgage goes the other way round. The debt increases on the Credit side, and Opening Balances decreases on the Debit side.

1 March · opening the mortgage

The same goes for all seven accounts. Each opening is an entry of its own, with its two lines.

1 March · the seven opening entries

Now look only at the Opening Balances account. On the Credit side it received the five assets: $233,200. On the Debit side, the two liabilities: $136,000.

The Opening Balances account after the seven entries

The balance stays on the Credit side, at $97,200: it's the net worth in the snapshot, coming out of the entries and not out of a calculation done on the side.

With the Cashfulness sign convention, Debit positive and Credit negative, every opening entry adds up to zero. How to take this inventory properly, account by account, is what we'll see in lesson 6.

Your turn

Stick to three of Anna's numbers. The home, $200,000. The mortgage, $130,000. The checking account, $5,000. How much of this is hers?

Try to answer before reading on.

$75,000: $200,000 plus $5,000, minus $130,000. That's only part of the picture. Add the cash, the ETF and the car, take away the car loan, and you're back at $97,200.

Three numbers not to mix up

The same snapshot holds three different numbers, and they answer different questions.

The first number is liquidity, $5,200: the money Anna can spend tomorrow morning. The second is the estimated values, $218,000, with the ETF sitting in between the two.

The third is net worth, $97,200. It's a recorded number: Anna's best estimate, on a given date.

If tomorrow Anna found an account she'd forgotten, the recorded number would go up. But she wouldn't be any richer: that money was already there. A rediscovered account raises the recorded net worth, not her actual wealth.

What will make the number change

From here on, net worth moves. Income and expenses move it most: the salary raises it, groceries and interest bring it down.

But not every change comes from them. The $97,200, for example, isn't a gain: it's the starting point. And that forgotten account would change the recorded net worth without any gain at all.

Each time the number changes, it's worth asking where the difference comes from.

The same snapshot in Cashfulness

In the video, the same snapshot appears in Cashfulness, in Anna's space, on the Balance Sheet page. At the top, there's a sentence with the date and the net worth. Below, the assets with their total, then the liabilities with their total. At the bottom, Net Equity.

There's nothing to work out. Every entry updates the balances, and every time you open the page, it takes a fresh snapshot by itself.

Two things worth knowing:

• The date is today's. The page takes the snapshot on the day you open it, and for now it has no date selector.
• How to get there. On a computer, in the sidebar: in the Balance section, choose Balance sheet. If you can't see it, switch from Essential to Full at the bottom of the sidebar.

What is a general principle and what is a Cashfulness choice

General principles

• Net worth is assets minus liabilities, on a date. In double entry the two sides of the snapshot are equal by construction: assets equal liabilities plus equity.
• Equity sits in the right-hand column, but it isn't a debt: it tells you how much of the value is yours.
• Every entry touches at least two accounts, and total Debit equals total Credit. That holds for opening entries too.
• The calculated net worth is a recorded figure, not a true one: it's the best estimate on that date. An asset you forgot and add later raises the recorded number, not your real wealth, which hasn't changed.
• Income and expenses explain the changes that go through the income statement. They don't explain everything: opening balances and a rediscovered account change the recorded net worth without being a gain.

Good practice, not law

• For household accounts, every asset goes in at a documented estimate, with its source and its date, and every debt at its outstanding principal. Businesses follow their own valuation rules, which don't apply here.

Cashfulness choices

• The Opening Balances account, in equity, collects the first snapshot: every account opened with a balance is recorded against it.
• The sign: a Debit line is positive and a Credit line is negative, so every balanced entry adds up to zero.
• The Balance Sheet page shows the date of the day you open it, and for now it has no date selector.
• In the app's chart of accounts, assets are split into Assets+ and Assets−. It's a Cashfulness lens: we'll look at it in lesson 5.

Choices made by whoever keeps the accounts

• Which estimate to use, and how conservative to be. Anna chose a conservative estimate for the home and used-car listings for the car. Someone else might start from a professional valuation.

The amounts are examples and serve to isolate the mechanism.

Frequently asked questions

Do I subtract the whole mortgage, or only what's left?

Only the principal still to be repaid, which you'll find in the repayment schedule or in your online banking. The total of the future payments also includes interest: that isn't a debt today; it will become an expense month by month.

Should my home go in at the purchase price or at today's value?

To know where you stand, what counts is a documented estimate of today's value: listings of similar homes, a professional valuation, or official house-price data where your country publishes it. Write down the source and the date, and choose a conservative estimate. It's still an estimate, not the exact value, which you'd only find out by selling. The purchase price tells the story of a past decision.

Can net worth be negative?

Yes, when your debts are larger than the value of what you own. It happens, for example, with a car loan on a car that's now worth less than the debt left on it. It isn't a judgement: it's a starting point worth knowing.

Transcript of the lesson

The text of lesson 3, lightly edited for reading. The numbers are the same as in the video.

Anna has 5,000 dollars in her checking account. Now picture another person, made up just for this example. She also has 5,000 dollars in her account. Same balance. But she has a car worth 9,000 dollars and a loan of 16,000. Anna has a home, a mortgage and an investment. The balance is identical. Their net worth is worlds apart.

Net worth is everything you own minus everything you owe, on a specific date. For our made-up person, it comes to minus 2,000 dollars: she owes more than she owns. For Anna, it's 97,200. The account balance is just one line on the list. Now let's build Anna's net worth, account by account.

Sailors have a name for it: a position fix. It's the exact position of the boat on the nautical chart, with the time written next to it. Without the time, it's no use, because the boat keeps moving. For your money, the position fix is the list of what you own and what you owe, with its date. An accountant calls it a balance sheet: a snapshot, not a film. Anna's is dated the 1st of March, the day she decides to start.

First column: the assets, meaning everything Anna owns. The checking account, 5,000 dollars. The cash in her wallet, 200. An ETF worth 10,000. That's a fund you buy and sell on the stock exchange, and it can track shares, bonds or other things. The home, 200,000. The car, 18,000. In all, 233,200 dollars.

Two of these numbers deserve a question: who says so? For the home, Anna looked at listings of similar homes and chose a conservative estimate. The car cost her 30,000 dollars. Used-car listings say it's worth 18,000 today, so 18,000 is what goes in. The price she paid is history. For the ETF, there's the statement from the bank. Every value has a source and a date. It's a documented estimate, not the exact value. You'd only find that out by selling.

Second column: the liabilities, meaning what Anna owes. The mortgage on the home, 130,000 dollars. Look closely at which number goes in. It's the outstanding principal, the part still to be repaid, as shown in the bank's repayment schedule. Not the total of the payments still to come, because those also include future interest. That interest will become an expense, month by month. Then the car loan: 6,000 dollars of principal. In all, 136,000.

Now the subtraction: 233,200 minus 136,000. Anna's net worth, on the 1st of March, is 97,200 dollars. Accountants call it equity. Let's put it all in columns. On the left, the assets: 233,200. On the right, the liabilities, 136,000, plus equity, 97,200. That's 233,200 again. The two sides are equal by construction. Equity sits on the right, but it isn't a debt. The right-hand side tells you where the value comes from. Part of it was put in by the lenders, the people who lent Anna the money. The rest is Anna's.

In double entry, this number isn't worked out on the side. It's recorded. On the 1st of March, Anna records every account against an equity account. Cashfulness is the app I built to keep household accounts in double entry. In the app, that account is called Opening Balances. For the home: Home in Debit, 200,000, and Opening Balances in Credit, 200,000. For the mortgage, the other way round: Opening Balances in Debit, 130,000, and Mortgage in Credit, 130,000. Do this for all seven accounts, and Opening Balances is left with 97,200 on the Credit side. We'll see how to take this inventory properly in lesson 6.

This snapshot holds three different numbers. The first is liquidity: the checking account and cash, 5,200 dollars. That's money Anna can spend tomorrow morning. The ETF sits in between: it can be sold in a few days, at whatever the price is that day. Then there are the estimated values, the home and the car. You can't spend them, and you only get the real price when you sell. The third is net worth, 97,200. It's a recorded number: Anna's best estimate, on a given date. If tomorrow she found an account she'd forgotten, the number would go up. But she wouldn't be any richer: that money was already there.

Here's the same snapshot in Cashfulness, in Anna's space. At the top, there's a sentence with the date and the net worth: 97,200 dollars. Below, the assets with their total. Then the liabilities. At the bottom, Net Equity. The date is the day I recorded this video: this page always takes the snapshot on the day you open it. And in Anna's space, for now, nothing has happened after the 1st of March.

To get there: in the sidebar, in the Balance section, choose Balance sheet. If you can't see it, switch from Essential to Full at the bottom of the sidebar. There's nothing to work out. Every entry updates the balances, and every time you open the page, it takes a fresh snapshot by itself.

Now it's your turn. Let's stick to three of Anna's numbers. The home, 200,000. The mortgage, 130,000. The checking account, 5,000. How much of this is hers? Take a few seconds.

75,000 dollars: 200,000 plus 5,000, minus 130,000. That's only part of the picture. Add the cash, the ETF and the car, take away the car loan, and you're back at 97,200.

From here on, the number moves. Income and expenses move it most: the salary raises it, groceries and interest bring it down. But not every change comes from them. The 97,200 dollars, for example, aren't a gain: they're the starting point. And that forgotten account would change the recorded net worth without any gain at all. Each time, it's worth asking where the difference comes from.

The balance sheet shows where you are. The income statement tells you how you got there. In the next lesson, Anna makes her mortgage payment: 650 dollars leave her account, but the cost is much less. We'll see why. Meanwhile, in the description you'll find the lesson's page, with Anna's snapshot in a table. Then try it with your own numbers.

The previous lesson

Lesson 2 · Debits and credits: 4 examples that finally make them click. Debit and Credit are two columns, and the account's family decides the side. With Anna's salary, the grocery shopping and a dinner paid by credit card.

The next lesson

Lesson 4 · Income statement: you pay $650 on the mortgage, but what does it cost?. On 10 March, $650 leaves Anna's account for the mortgage payment. The cost is much less: lesson 4 separates the principal from the interest.

Redo the snapshot with your own numbers

Take Anna's balance sheet table and redo it with your own accounts. First the names, then the figures, each with its source and its date. For debts, the outstanding principal.

I built Cashfulness to keep household accounts in double entry. If you want to keep that snapshot up to date without redoing the sums by hand, every account opens with its balance against Opening Balances, and the Balance Sheet page takes a fresh snapshot by itself.

Discover Cashfulness

Sources

• Bank of Italy, Survey on Household Income and Wealth: income, wealth and savings of Italian households.
• IFRS Foundation, Conceptual Framework for Financial Reporting: the definitions of the elements (assets, liabilities, equity). Companies' valuation rules don't apply to household accounts.
• On the Cashfulness blog: Your fix: the coordinate that decides everything.
• The examples come from the story of Anna's family, built for the course "Double-entry bookkeeping, step by step": every entry is checked, with total Debit equal to total Credit.

Vittorio Giusti is an economist and psychologist, and he built Cashfulness.