We looked at how to calculate your net worth in one of our previous article. The net worth calculation will help you knowing if you are going forward or backward from one year to another. However, when you present your net worth to a banker, there are some item that may not worth too much for them.

Cars

While I suggest including your car value in your balance sheet, it should definitely not represent an important asset while calculating your net worth. I usually set my personal car value according to the loan attached to it. I do not want to penalize my net worth because I have a car loan, but you should surely not increase your net worth with the help of your car! Most banker will give little to no value to cars, so don’t be surprised; it is a depreciating asset!

House

This is probably one of the biggest questions: should we include the main residence in the calculation of your net worth? I personally think you should. You could decide to live in an apartment and invest a part of your money instead of using it as cash down. Therefore, the equity in your property worth something. It can help to consolidate your debts, pay off credit cards, and finance your next car purchase or renovation. It is also important to mention that your banker will calculate your net worth considering your property value.

Pension Plan

Some people calculate their net worth including their pension plan. You can surely do it on a personal basis to know if your net worth is increasing overtime. After all, if your employer is giving an important contribution, this is still money that you will have a right on it at one point. However, since you cannot access this money by any means (you are not allowed to withdraw money from a pension plan unless you meat certain amount of criterions). Therefore, I would not suggest to include the pension plan in your net worth calculation when you are about to ask for a loan. Your banker won’t do it as well.

Other Registered and Non-Registered Investments

Since those are the most liquid of all your assets, they are definitely included in a net worth calculation. The only thing to be careful about is if you have a brokerage account with stocks. Since the value can fluctuate from one month to another (we have a great example with what is going on in the markets lately), your banker may give you less than what your stocks actually worth.

In the end, the key to get a good net worth is to have multiple kinds of assets in our balance sheet. With a property, a pension plan and other investment on the side, you will definitely in a great position to show your net worth to your banker

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Calculating your net worth is a valuable exercise at any income or savings level. It allows you to paint an accurate picture for yourself and for anyone who needs to know (such as loan officers or life insurance agents) of your current financial position.

Calculating your net worth can also be a useful evaluation tool each year to examine where you are and where you need to be. This allows you to set goals and work toward specific financial milestones.

To calculate your net worth, you should take the following steps:

· List, with the value in dollars, your most valuable assets. For many people, this includes home(s) and some vehicles. Use the most accurate, current evaluations of value. Be conservative in listing the values, as inflating these numbers does no good to you, and gives you an inaccurate picture of your worth.

· List the current dollar value of all liquid assets. This includes savings and checking accounts, cds, mutual funds and stock funds. This does also include retirement savings such as Roth and regular IRAs, and a 401K or pension plan. You will need your most recent financial statements to accurately complete this section. Many brokerages and banks also have online access where you can find the balance of each account.

· Add to the list the current dollar value of any personal assets. When you value these items, list their value as the amount you could get if you sold the item today. Because you paid a great deal for an Italian leather couch 10 years ago does not make it worth thousands today. Some items that may make the list include jewelry, musical instruments, valuable collections, and art. List valuable (over $500) items individually, then have one aggregate sum for “the rest of the household items.”

· Add the three sections to find your total assets.

· Now work on the liabilities section. Begin with the largest debts, such as home and vehicle loans. List the outstanding balance on each loan.

· List all personal liabilities, such as credit card debt, student loans, short-term debt for furniture or electronics, and every other liability you may have – amounts you are obligated to pay.

· Add the two sections of liabilities.

· Subtract the total amount of the liabilities from the total assets. The resulting figure is your net worth.

· Examine the number and the factors that led to the number, and make plans for improving it before the next year. Then repeat the process the next year and compare.