Net worth is a single number that tells you where you stand financially. It is more useful than income as a measure of financial health because income tells you what you earn while net worth tells you what you actually have.
Many high-income people have low or negative net worth because of high spending and debt. Many moderate-income people have strong net worth because of consistent saving and modest lifestyles. Knowing your number gives you an honest starting point.
The Simple Formula
Net worth = Total assets minus total liabilities.
Assets are things you own that have value. Liabilities are what you owe. The difference is your net worth.
What Counts as an Asset
Assets include:
- Cash in checking and savings accounts
- Money in retirement accounts (401k, IRA, pension value)
- Investment account balances
- Home equity (the current market value of your home minus what you owe on the mortgage)
- Vehicle value (current resale value, not what you paid)
- Valuable personal property (jewelry, collectibles, equipment)
- Business ownership value if applicable
What Counts as a Liability
Liabilities include:
- Credit card balances
- Student loan balances
- Car loan remaining balance
- Mortgage remaining balance
- Personal loan balances
- Any money you owe to family or friends
How to Calculate Yours in 10 Minutes
Open a spreadsheet or a piece of paper. Look up or estimate each asset value and write it down. Find each debt balance (log into accounts or check a recent statement). Add up each column. Subtract liabilities from assets. That is your net worth.
Do not skip accounts because you are afraid of what you will find. An accurate picture, even a painful one, is more useful than an incomplete one.
What Is a Good Net Worth?
Net worth changes dramatically with age and income, so comparisons to a single standard number are not particularly meaningful. A more useful benchmark is the rough guideline of having saved roughly 1 times your annual salary by age 30, 3 times by age 40, and 6 times by age 50, though circumstances vary enormously.
More useful than comparing to external benchmarks is tracking your own trend over time. Is your net worth higher than it was last year? Is the trajectory moving in the right direction? That is the information that guides better decisions.
Track It Regularly
Calculate your net worth quarterly or at least annually. Many people find that seeing the number improve over time is motivating in a way that monthly budget reviews are not. It provides a higher-level view of your financial trajectory.
Apps like Personal Capital (now Empower) connect to all your accounts and calculate net worth automatically in real time. Or continue with a simple annual spreadsheet. Either approach works.
How to Grow Your Net Worth
There are only two levers: increase assets or decrease liabilities. Every financial decision either moves one of these in the right or wrong direction. Paying extra on a credit card decreases liabilities. Adding to your 401(k) increases assets. Taking on new unnecessary debt decreases net worth. Selling something you no longer need increases assets.
Framing daily financial decisions in terms of their impact on net worth creates a simple, consistent mental model for better choices.