Calculating your net worth

User Written by Philip Howell-Williams on March 05, 2018.

Calculating your net worth

I recently had the pleasure of discussing this subject with Peter Lewis who hosts the Money Talk Xtra show on RTHK Radio 3. It’s amazing just how many people don’t have a clue about their net worth even though this is possibly the single most critical figure to know if you want to be in control of your finances. So, it seemed a good idea to also dedicate a blog post to this topic and summarise what I discussed with Peter.

The reason it is so important to know your net worth is that it is a crucial starting point to assessing your financial situation, setting and achieving your goals and building yourself a secure financial future. In other words, it allows you to understand where you are and then to work out where you want to be financially and how to get there. Your net worth also has tax implications and is key to estate planning, an important facet of financial planning even if you are young and in peak health.

Put simply, your net worth is the figure you get when you calculate the difference between the value of your assets and the value of your liabilities. If you have more than you owe then your net worth is positive, if you owe more than you own then it is negative.

If we take the definition used for inheritance tax purposes in the UK, assets are anything you own worth more than £500. That could include cash, bank deposits, your home or other properties that you own such as investments, pension funds, art, jewelry, cars and so on.

Your liabilities are your debts, including anything that you owe whether that be a mortgage, student loans, credit card debt, balances on store cards and any other loans. When it comes to financial planning, we also often take into account future liabilities such as university fees that you will need to pay for your children when the time comes.

You can easily calculate your own net worth and there are plenty of online calculators to help you do this. However, in my view nothing beats a meeting with a professional financial adviser to help with calculating net worth and then moving on to clarify goals for the future so that the figure will grow year on year. That’s also why I recommend recalculating your net worth on an annual basis to track how you are doing and keep the bigger picture in mind – a good advisor will help by having at least annual reviews with you. In theory, as you progress through your career and your salary increases your net worth should naturally increase. And there are plenty of steps you can take to help it along in the right direction by reducing expenditure, seeking out lower interest rates on debt and harnessing the power of compound interest by saving and investing wisely.

While it is obviously preferable to have a net worth figure that is positive rather than negative, there are certain times in your life when that may not be the case. I can’t condone a negative figure that is due to blowouts and spending on luxury items but sometimes it is a result of a strategic decision that makes good financial sense. To give an example, many people will graduate with negative net worth as a result of loans taken out to gain a degree. If they then go on to have a successful, well-paid career then this is a wise investment for the future. Similarly, when we first jump on to the property ladder and take out a mortgage our liabilities may exceed our assets. But, as mortgage repayments are made we should find that the balance is redressed as our home retains its value (worst-case – hopefully its value will rise over the long term) and our liability decreases.

Some people ask if there is a specific net worth figure that they should work towards. The answer is no as it will depend on everyone’s unique circumstances, such as your desired lifestyle in retirement. What is important is that you gain control of your financial situation and take steps to attain financial security in the short and long term.

If you’d like to listen to my chat with Peter you can do so here. If you’d like some assistance with calculating your net worth, working out where you want to be financially and deciding how to get there, do drop me a line at so we can arrange a meeting.

Philip Howell-Williams

Philip Howell-Williams

Posted on March 05, 2018 in Financial Planning.