One number, updated once in a while, can show whether your money is moving in the right direction.
Your paycheck tells you what comes in. Your budget tells you where it goes. But neither one shows the full picture of where you stand. That is what net worth does.
Net worth is the value of everything you own minus everything you owe. It is like a snapshot of your finances on a single day. You do not need special software or a finance degree to figure it out. A sheet of paper, a calculator and about an hour are enough.
This guide walks through the formula, what to include, how to put a value on things and a full worked example.
The simple formula
The SEC's Investor.gov describes a net worth statement as two lists. On one side, you list what you own. These are your assets. On the other side, you list what you owe. These are your liabilities, or debts. Then you subtract.
If your assets are bigger than your debts, you have a positive net worth. If your debts are bigger, your net worth is negative. Both are normal at different stages of life.
Step 1: List your assets
An asset is anything you own that has money value. Group them so nothing gets missed.
Cash and savings
- Checking accounts
- Savings accounts, including high-yield savings
- Certificates of deposit (CDs)
- Cash on hand
Investments and retirement accounts
- Workplace plans like a 401(k) or 403(b)
- Individual retirement accounts (IRAs), including Roth IRAs
- Brokerage accounts with stocks, bonds or funds
- Health savings accounts (HSAs)
- 529 education savings plans
Property
- Your home, if you own it
- Other real estate
- Vehicles
Other valuables
- Items with real resale value, such as jewelry or collectibles
- Money others owe you, if you truly expect to be paid back
Step 2: List your liabilities
A liability is money you owe. Pull up your latest statements and write down the current balance, not the monthly payment.
- Mortgage on your home and any home equity loan or line of credit
- Car loans
- Student loans
- Credit card balances
- Personal loans and "buy now, pay later" balances
- Medical bills or other money you owe
- Loans from family, if you plan to repay them
Step 3: Put a fair value on each item
Getting values right keeps your number honest. A few tips:
Use account balances for bank, retirement and loan accounts. Log in or check your most recent statement.
Be realistic about your home. Use a conservative estimate of what it might sell for. Online estimates are only a starting point.
Use resale value for cars. A car is worth what someone would pay for it today, not what you paid.
Skip everyday belongings. Furniture, clothes and electronics usually sell for far less than you paid. Many people leave them out or count only items with clear resale value.
Remember many retirement accounts are pre-tax. The IRS says distributions from a traditional IRA are fully or partially taxable, and traditional 401(k) withdrawals are generally taxed too. Your listed balance may be more than what you could actually spend. Some people note this rather than adjust for it.
The goal is not perfection. It is a consistent method you can repeat later.
A worked example
Here is a sample household to show how the math works. These numbers are made up for illustration only.
Assets
- Checking account: $2,500
- Savings account: $6,000
- 401(k): $38,000
- Roth IRA: $9,500
- Home (estimated sale value): $310,000
- Car (resale value): $14,000
- Total assets: $380,000
Liabilities
- Mortgage: $248,000
- Car loan: $9,000
- Student loans: $21,000
- Credit cards: $3,200
- Total liabilities: $281,200
Net worth: $380,000 − $281,200 = $98,800
That number looks healthy. But notice how much of it is tied up in the home. If you set the home and mortgage aside, the picture changes:
- Assets without the home: $380,000 − $310,000 = $70,000
- Debts without the mortgage: $281,200 − $248,000 = $33,200
- Net worth without the home: $70,000 − $33,200 = $36,800
Looking at both numbers is useful. Home equity is real, but you cannot spend it on groceries without selling or borrowing against the house.
A second example: starting below zero. A recent graduate has $3,000 in savings and a car worth $6,000, for $9,000 in assets. They owe $28,000 in student loans and $1,500 on a credit card, for $29,500 in debts. Their net worth is $9,000 − $29,500 = −$20,500.
A negative number like this can happen early in adult life, especially with student loans. Investor.gov notes that following a financial plan can help turn a negative net worth into a positive one over time.
How to read and use your number
Your net worth on one day matters less than its direction over time. Some ideas for making it useful:
Track it on a schedule. Investor.gov suggests updating your net worth statement each year to check your progress. Some people prefer every three or six months. Pick a schedule and stick with it.
Look at what moved it. Did paying down a credit card help? Did investments rise or fall? Changes show what is working.
Do not compare yourself to others. Age, income, location and family size all shape net worth. Your own past number is the best comparison.
Expect bumps. Stock market drops, a new car loan or a big medical bill can pull the number down for a while.
Focus on the levers you control. Spending less than you earn, paying down high-interest debt and saving regularly tend to grow net worth over time.
This article is for education only and is not financial advice. Everyone's situation is different.
Content on The Evergreen Edit is for educational and informational purposes only and is not individualized financial, investment, tax or legal advice. Learn more.
This article is for educational purposes only and isn't personalized financial, tax or legal advice. Consider talking with a qualified professional about your situation.
Kiara Miller — Founder & Editor
Kiara Miller is the founder and editor of The Evergreen Edit. He has been doing independent finance research for two decades and reviews every article before it's published.
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