What Does Net Worth of a Person Mean and How is it Calculated?

    Net worth can be a confusing concept for people. What exactly does it include and entail? How do you calculate it?

    Rest assured, figuring out your personal net worth is simple. The most basic equation is subtracting your liabilities (everything you owe) from your assets (everything you own).  Your personal net worth is the amount by which your assets exceed any liabilities, and it’s an accurate reflection of your financial standing.

    Liabilities can include things like your mortgage, car loans, student loans, credit card debt, or any other debt you might owe. Assets include any real estate, vehicles, personal property (this can include jewelry, furniture, or anything of value that can be sold), retirement accounts, stocks and bonds, life insurance with cash value, savings bonds, money in checking and savings accounts.

    Here’s an example: let’s say you have a $20,000 note on your student loans, $350,000 left to pay on the mortgage for your Manhattan apartment, and $10,000 of credit card debt. That’s a pretty hefty sum. However, you have $15,000 in cash, a $200,000 IRA (self-funded retirement plan), and you’ve already paid off half of your $700,000 mortgage. In this case, your net-worth would be $535,000.

    To get to that number we take the liabilities (-$350,000, -$10,000, -$20,000= -$380,000) and we add in the assets (+$700,000, +$200,000, +$15,000 = $915,000-$380,000=$535,000). Because you own the title and just owe one -half balance, the title is still considered as an asset. When you’re done paying off the balance you will own the property.

    Now, take into account that you bought the apartment 10 years ago. Maybe you delayed paying off your student loan debt because you wanted to buy a property in a place like New York City where you could earn a great living.

    Even though the value of the note 10 years ago was $700,000, the property has appreciated and is now worth $900,000. Add in the $50,000 of renovations you’ve done, and that will raise the property value even further.

    As you can see, your personal net worth will definitely fluctuate and change over time. The key thing is having enough investments and valuable assets to keep your personal net worth stable and growing over time. Consistently paying off any debts is another great way to increase it.

    When it comes to applying to citizenship by investment programs, you’ll need to calculate your personal net worth at the time of application to determine if you are eligible. These programs are targeted toward high net worth individuals, and thus have specific requirements when it comes to personal net worth.

    In case you want to calculate your net worth right now here is a great net worth calculator that can help you with that.

    If you have any questions please don’t hesitate to contact us.


    New call-to-action


    Vicky Katsarova

    A citizen of the world in every sense of the phrase, Vicky has done her fair share of traveling. Born and raised in Bulgaria, she spent 10 years living and working in Abu Dhabi before settling down with her family in Nova Scotia, Canada. And it’s only fitting for the CEO and founder of High Net Worth Immigration to be an avid globetrotter—her extensive travels have given her deeper insight and understanding into her clients’ needs.