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 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.
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
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 , 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.
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.
Everyone’s approach to increasing their net worth may look a little different. But smart financial habits like paying yourself first each month (aka, saving money), staying on top of your expenses and putting money away for retirement are some good building blocks to start with.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs® but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.