How do I figure my net worth?

Your net worth is the difference between your ASSETS and your DEBTS. You should 

use the value of your assets, not the purchase price when figuring your net worth. If you own a house that you purchased for $350k that is now worth $500k and you owe $200k on it, your house adds $300k to your net worth or $500k – $300k = $200k. If your five-year old Beemer cost $40k but is now worth $20k and you owe $25k on it, your net worth decreases by $5k or $20k – $25k = -$5k.

You should also include in your net worth:

  • Your retirement accounts, including the vested amount of your 401k
  • The value of your share of any partnerships or other business ownership
  • Any debts owed to you, as long as you’re sure they are collectible
  • The cash surrender value of whole life insurance policies (and give yourself a smack on the head)
  • Valuable antiques, artwork, and jewelry

Do not include:

  • Home furnishings since they would bring little in a liquidation sale (unless valuable collectibles)
  • Vehicles unless they are collectibles or otherwise valuable
  • Any assets in irrevocable trusts FBO :(for benefit of) anyone other than you and your spouse
  • Future amounts you expect to inherit
  • Any accounts in your children’s names

Because of school loans, most doctors have negative net worth when they first become an attending. Technically, this means you are “insolvent”, but it is also common. What is not common is to remain insolvent for more than 3 – 5 years after graduation. A common mistake in financial plans it to focus on “your number” or the balance in your retirement accounts. The goals in your financial plan should be measured by growth in your net worth not just your investments.

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