What It Means
In personal finance, liabilities are the debts you owe: a mortgageMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more, car loansCar loanAn installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral. See more, student loansStudent loanMoney borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender. See more, personal loans, credit card balances and any other money you've borrowed or still have to pay. On a net worth statementPersonal balance sheetA one-page list of everything you own and everything you owe on a given date, with your net worth as the difference between the two. See more they sit opposite your assetsAssetsThings you own that are worth money, such as cash, investments, a home or a car. Your assets minus your debts is your net worth. See more, and your net worthNet worthWhat you own minus what you owe: the value of your savings, investments, home and other assets, less your mortgage, loans and card balances. See more is total assets minus total liabilities. Each debt is listed at the balance you still owe today, which after a few years of payments is usually less than the amount you first borrowed.
Try It: Total Your Debts and a Year of Interest
Enter each balance and its interest rate from your statements. The rates below are examples only.
The yearly figure runs a little high, since each payment shrinks the balance the interest is charged on.
Highest rate: the credit card. Each dollar of that balance costs the most to carry.
Highest rate: the car loan. Each dollar of that balance costs the most to carry.
Highest rate: the student loan. Each dollar of that balance costs the most to carry.
Highest rate: the mortgage. Each dollar of that balance costs the most to carry.
How It Sounds at Home
- "Once the car loan's gone, our liabilities drop a lot."
- "The mortgage is our biggest liability by far."
- "Put every debt on the list, even the store card."
The Breakdown
Worked example. A couple lists what they owe. The rates are examples.
| Liability | Balance | Example rate | A year of interest at this balance |
|---|---|---|---|
| Mortgage | $250,000 | 6.5% | $16,250 |
| Car loan | $9,000 | 7% | $630 |
| Student loan | $18,000 | 5% | $900 |
| Credit card | $2,500 | 22% | $550 |
| Total | $279,500 | $18,330 |
Their assets add up to $380,500, so their net worth is $380,500 minus $279,500, or $101,000.
What the result means. The total says how much stands against what you own, and the interest column says what carrying each debt costs. That second column points somewhere the balances alone don't: the $2,500 card is the smallest debt on the list but carries the highest rate, so each dollar of it costs the most. Paying down the highest-rate debt first is the idea behind the debt avalanche method.
The yearly interest here is rough on purpose. Each monthly payment lowers the balance, so the real figure over a year comes in a little under what's shown. Your statements show the interest actually charged.
Good to Know
Fidelity's net worth guide names mortgages, credit card balances and personal or auto loans as common liabilities. Investor.gov, the U.S. Securities and Exchange Commission's site for investors, calls it negative net worth when what you owe is larger than what you own, which can happen after a big loan like a student loan comes before the savings do. Take each balance from a current statement or your lender's website on the day you make the list, since balances change after every payment, and include buy nowBuy now pay laterA short-term loan at checkout that splits a purchase into a few payments, most often four interest-free installments with the first due when you buy. See more, pay later plans and money owed to family if you intend to pay it back.
FAQ
What are examples of liabilities?
A mortgage, car loan, student loans, personal loans and credit card balances. Fidelity's net worth guide lists mortgages, credit card balances and personal or auto loans.
Are rent and utility bills liabilities?
A net worth statement lists debts with a balance, like loans and cards. Rent and utilities you'll pay next month are expenses for your budgetBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more, while a bill that's overdue is money you owe, so list it with your debts until it's paid.
Is a mortgage a liability or an asset?
The mortgage is a liability and the home is an asset. The difference between what the home would sell for and what you still owe on the mortgage is your home equity.
Do It in Buhata
Bills
Add each loan and card to Bills in Buhata, a Plus tool, with its due date, so every payment on what you owe shows up before it's due.
Open BuhataRelated Terms and Categories
- Assets
Things you own that are worth money, such as cash, investments, a home or a car. Your assets minus your debts is your net worth.
- Net worth
What you own minus what you owe: the value of your savings, investments, home and other assets, less your mortgage, loans and card balances.
- Personal balance sheet
A one-page list of everything you own and everything you owe on a given date, with your net worth as the difference between the two.
- Debt-to-income ratio
Your total monthly debt payments divided by your gross monthly income, shown as a percentage; lenders use it to judge whether you can take on a new payment.
Sources
Fidelity, "Net worth: What it is and how to calculate it"; Investor.gov (U.S. Securities and Exchange Commission), "Figure Out Your Finances"
- www.fidelity.com/learning-center/smart-money/net-worth
- www.investor.gov/introduction-investing/investing-basics/save-and-invest/figure-out-your-finances
Last updated .