Content of the material
- How to Use the Net Worth Calculator
- Understanding Your Assets
- Annual Asset Growth Rate
- Understanding Your Liabilities
- Annual Liability Growth Rate
- Why Are Some Against the Camel Calculators?
- The Expected Value Method
- How to calculate net worth
- How to Use This Information
- Risk and Returns
- What Are Liabilities?
- Determining What Your Time at Work Is Worth
- Years to Accumulate
- Questions of the quiz
- Do you look younger than your actual age?
- Which one describes your skin better?
- Do you consider yourself a tall or short person?
How to Use the Net Worth Calculator
To get the most out of Forbes Advisor’s net worth calculator, we recommend that you input data that accurately reflects the value of your assets and liabilities.
Understanding Your Assets
To get an accurate read on your net worth using this calculator, you need a good idea of the value of your major assets.
Assets are nothing more than possessions that you could exchange for cash. Stocks, bonds and other investments are assets, but so are things like your home, your car and even the money in your checking account.
Some assets are more liquid than others, meaning you could sell them more rapidly at a price that reflects their current value. Cash, for instance, is the most liquid asset. But other assets are less liquid, which means it would take time and effort to sell them, and you might not get exactly what you thought they were worth.
For each asset type in our calculator, enter an estimate of what you believe the value of the asset would be if you sold it today. Don’t worry about how much outstanding debt you might owe on something like a car loan or a mortgage. We’ll cover those in the “Your liabilities” section.
Annual Asset Growth Rate
The annual rate of growth in the value of your assets can be very tricky to get right. Our calculator lets you tabulate the value of four different types of assets: real estate, personal property, investments and cash.
Each of these would probably earn a very different annual rate of return, making it challenging to settle on the right overall annual growth rate. This calculator defaults to a growth rate of 7% to reflect somewhat conservative returns for stock-heavy investments and real estate. You may wish to lower this even more if you have substantial holdings in cash or personal property with low or no rates of return.
Understanding Your Liabilities
Liabilities are outstanding financial debts that you owe, or the negative side of your personal balance sheet. In our calculator, you’ll simply enter the amount outstanding on each variety of liability you owe.
Over time, some liabilities slowly transform into assets. That’s what happens as you pay off your mortgage and earn equity in your home. In other cases, paying off a liability simply means you have no further obligation to the entity that lent you money, like working down your credit card balance.
Annual Liability Growth Rate
The annual growth rate of your liabilities could be as challenging to determine as the growth rate of your assets.
Some liabilities, like a car loan or a home loan, have set terms and rates of interest that you’ve already agreed to. Other liabilities, like student loans and credit card debt, are more open-ended. If you keep adding more to your balance, or make only minimal regular payments, your liabilities may continue to grow.
If you have a mortgage and a car loan and are paying off each on a regular basis (per the terms of your loan agreement), the growth rate of your liabilities should be zero. If you have a credit card balance that you’re not adding to, and you’re paying it off every month, your liability growth rate should also be zero.
But if you have student loans or credit card debt that you’re not paying down regularly, think about the interest rates and balances you hold in order to enter a rough estimate of what your liability growth rate might look like.
Why Are Some Against the Camel Calculators?
Many suggest that questions like, “how many camels am I worth?” are offensive. And it is not acceptable to assess one’s value with livestock. The critics also point out the human rights issues such as domestic violence and crimes against women caused by dowry or mahr. They believe romanticizing and using camel calculators supports unethical laws and behaviors against certain minorities.
Others, however, suggest that it is a fun and entertaining test—and the results should be taken lightly.
The Expected Value Method
The Expected Value Method is the final, and most difficult, way to calculate the value of time. I’m going to try to explain this in the simplest way possible, but I think the easiest way to understand it is to look at the calculations in Step 4 of the Time-Value Spreadsheet.
Here’s the basic logic:
- Start by breaking your time out by task. The more detailed you can be about each use of time, the better you can distinguish which areas drive the most value.
- Find a unit of measurement that connects the tasks you work on with the income you earn. For most business owners, this means you need to know the value of a “lead” in your business. In my particular case, I use email subscribers because I know the average lifetime value of a new email subscriber and most of my tasks can be linked to getting more email subscribers in some way.
- Estimate the value of each task. Let’s say I spend one hour working on a task that results in 50 new email subscribers. If the lifetime value of each subscriber is $1, then the expected value of that task is $50/hour. Repeat this type of expected value estimate for every task you work on.
- Add all of the expected values together to determine the total expected value of your time.
- Add extra variables as desired. Expected Value Methods can be as complex as you want to make them. You can account for factors like how much happiness a particular task brings to your life or how likely it is for this hour of work to continue to payoff years from now.
Expected Value calculations are highly individualized and you’ll probably have to wrestle with the equations for awhile to get them to work for you. Again, I think it’s easiest to see this worked out in numerical form. You can see all of the factors involved in this calculation in Step 4 of the Time-Value Spreadsheet.
How to calculate net worth
Once you’ve tallied your personal assets and your full set of liabilities, it’s time to calculate your net worth. You can use the net worth calculator above for a quick and simple answer. If you’re still curious about how to calculate your net worth yourself, the equation is pretty straightforward.
Simply add together all of your assets. Then, separately, add together all of your liabilities. Once you have each sum, subtract the liabilities from the assets to give you your full net worth. Here’s the equation written out simply:
How to Use This Information
We have now completed Part I. With the calculations above, we were able to determine a quick and accurate estimate of what your time is worth. Now we can narrow the zone of uncertainty and make better decisions.
- If you know your time is worth $25 per hour, then you should never wait in line for 30 minutes to get a $10 gift card.
- If you know your time is worth $60 per hour, then you should always pay $49 for shipping instead of spending one hour shopping at the store.
- If you know your time is worth $80 per hour, then you should always buy the direct flight that saves you two hours even if it costs $150 more than the flight with a stopover.
Once you know, in dollars and cents, how much an hour of your time is truly worth you can make better decisions on a daily basis.
At this point, we know your time is worth at least the number you calculated in Part I because Realized Income Methods only account for income you have already earned. Ready to see if your time is actually worth more? Let’s dive into Part II.
Risk and Returns
The closer you are to retirement, the more vulnerable you are to dips in your investment portfolio. So what’s an in investor to do? Conventional wisdom says older investors who are getting closer to retirement should reduce their exposure to risk by shifting some of their investments from stocks to bonds.
In investing, there’s generally a trade-off between risk and return. The investments with higher potential for return also have higher potential for risk. The safe-and-sound investments sometimes barely beat inflation, if they do at all. Finding the asset allocation balance that’s right for you will depend on your age and your risk tolerance.
What Are Liabilities?A liability is something that you’re responsible for. In the case of net worth, we’re talking about your financial debts. Liabilities are a drain on your net worth, so get them out of your life!
Determining What Your Time at Work Is Worth
If you're paid by the hour, it's easy to figure out what an hour of your time at work is worth. If you're salaried and aren't sure what you make an hour, use this equation to determine your hourly rate:
Salary / 52 / # of hours you work per week
For example, if you make $80,000/year and typically work 40 hours/week, your hourly rate is $38.46 (80,000 / 52 = 1538.46 / 40 = $38.46).
If you'd rather not do the math yourself, you can use this CalcXML calculator to quickly determine your hourly rate.
When using the equation or calculator, you may want to make a few adjustments based on your situation. For example, if you don't get paid for vacation but take two weeks off each year, you'll divide by 50 weeks instead of 52 weeks. If you expect to make more or less money this year due to a raise or variable income, make that adjustment. And if you want to factor in taxes, you can do that as well.
Once you know your hourly rate, you can use that number to determine whether or not completing a work task is worth your time at work.
If you're a business owner or freelancer, you can do calculations similar to what we did for your personal time when deciding whether it makes sense to do things like:
hire an accountant (versus doing your taxes yourself)
hire a contractor for a few hours a month (versus spending your time on a task it doesn't make sense for you to do)
invest in a tool (versus doing something manually)
But these calculations can also be helpful for salaried employees. For example, maybe you're looking for ways to convince your boss to hire someone else to handle a portion of your workload (so you have more time to focus on higher-value work) or invest in a tool to automate that work.
Say you spend a lot of time each month doing manual data entry to move information from one tool to another. You've been using Zapier's free plan for a while, and you used Zapier's productivity calculator to see exactly how much time you've saved.
But to continue getting the most value from the tool, you need either more Zaps (automated workflows by Zapier) or multi-step Zaps, so you need to subscribe to a premium plan. If you make $35/hour, you only need to save an hour each month to justify the $25/month cost of Zapier's Starter plan.
If you can show your boss that it's cheaper to pay for the tool than your time—as well as how you'll use the time you save to produce higher-value work—that's a pretty easy investment for your boss to agree to.
Assets hold value. Cash, money in bank accounts, investment accounts, stock holdings, property, high-value jewelry, and electronics—all of these things count as assets in your personal wealth portfolio. When calculating net worth, you’ll add together all of these sources of value.
Years to Accumulate
The last factor to consider is your investment time frame. Consider the number of years you expect will elapse before you tap into your investments. The longer you have to invest, the more time you have to take advantage of the power of compound interest. That’s why it’s so important to start investing at the beginning of your career, rather than waiting until you’re older. You may think of investing as something only old, rich people do, but it’s not. Remember that most mutual funds have a minimum initial investment of just $1,000?
Questions of the quiz
- Question 1
Do you look younger than your actual age?
I look older
I look like my peers
I look slightly younger
I look very younger
- Question 2
- Question 3
- Question 4
- Question 5
- Question 6
- Question 7
Which one describes your skin better?
It has acnes/scares
It looks normal
It is smooth
It is bright and smooth
- Question 8
- Question 9
- Question 10
- Question 11
- Question 12
- Question 13
- Question 14
Do you consider yourself a tall or short person?
Taller than my peers
Taller than most people
- Question 15
- Question 16
- Question 17
- Question 18
- Question 19
- Question 20