What Is Net Worth?

Net worth equals assets minus liabilities and serves as a general marker of financial health — one that can help you evaluate your savings and investments against your debts.

Net worth might seem like a concept tailored to the super-wealthy, but the truth is, we all have a net worth. While it certainly doesn’t capture everything about your financial life, the number can be a helpful snapshot of your finances. 

Net worth definition 

Net worth is a dollar amount representing the total value of everything you own (your assets) after you’ve subtracted everything you owe (your liabilities). Knowing this number can help you assess your finances at a glance. 

Net worth can be either positive or negative. Positive net worth is when your assets are greater than your liabilities. Negative net worth, on the other hand, is when your liabilites exceed the value of your assets.

Keep in mind that net worth is only one metric for measuring financial health. There are other aspects you should consider (like your credit score for instance) when taking a broad view of your finances. 

How to calculate net worth

There are plenty of net worth calculators out there you can use, but it’s also pretty simple to calculate net worth on your own. 

Generally, to determine your net worth, subtract your total liabilities (anything you owe) from the total value of your assets (anything you own).

So the formula looks like this:

Net Worth = Total Assets – Total Liabilities

Assets

Broadly speaking, your assets are anything you own that has value. Think about the things you can put a dollar amount to. The first one that probably jumps to mind is cash, like the balances in your checking, savings and retirement accounts. You can also include money you have invested in any brokerage accounts.

Assets can also include other items you could sell – for example your home or other real estate holdings, any vehicles you own, and items of value like art, valuable jewelry, coin collections, etc. 

Liabilities

Liabilities , on the other hand, represent any financial obligations you are legally required to pay. In other words, any money you owe is considered a liability. This can include your current debts (your mortgage, credit card debt, student loans) along with any future debts.

Let’s take a look at a basic example. For assets, let’s say an individual has a house worth $400,000; $15,000 in a savings account; and $32,000 in an IRA. 

The same individual has $250,000 left on their mortgage, a credit card balance of $2,500 and $10,000 left in student loan debts. 

Using the net worth formula, we add up all of the liabilities and subtract that from the total assets.

($400,000 + $15,000 + $32,000) – ($250,000 + $2,500 + $10,000) = $447,000 - $262,500 = $184,500.

So in this example, the individual’s net worth is $184,500. 

Smart financial habits to help build net worth

Your day-to-day financial habits can play a crucial role in your ability to build net worth. If you’re getting serious about growing your net worth. Here are three habits to consider while keeping the big picture in mind. 

• Increase your contributions to your savings account(s) and take advantage of compound interest. The longer your savings can accumulate interest, the more your savings could grow. 
• Consider using online money management or budgeting apps to help you stay organized. Once you get a full picture of your finances, you can see where your money goes each month. You may even uncover areas in your budget where you could save more. (Check out this article for a few tips to reduce your recurring expenses.) 
• Maximize your retirement savings , especially if your employer offers a 401(k) match. You may also consider opening an Individual Retirement Account (IRA) if you hit the annual limit on your 401(k).
• Be sure to pay off your credit card bill in full and on time each month. That way you can avoid costly interest charges (which could take away from your personal net worth).