What is Net Worth?
The Simple Definition
Net Worth is the total value of everything you own (your assets), minus the total value of everything you owe (your liabilities/debt).
It is the single most accurate scorecard of your financial health. If you sold everything you owned today and used that money to pay off every debt you have, your Net Worth is the exact amount of cash you would be left with.
How to Calculate It
Assets - Liabilities = Net Worth
1. Add up your Assets:
- Cash in your checking and savings accounts
- The current market value of your home (if you own it)
- Your retirement accounts (401k, IRA) and brokerage accounts
- The Kelley Blue Book value of your car (only if you own it or have equity)
2. Add up your Liabilities (Debts):
- The remaining balance on your mortgage
- Credit card balances
- Student loans
- Car loans
Subtract your liabilities from your assets to find your net worth.
Negative Net Worth is Normal
If your liabilities are higher than your assets, you have a Negative Net Worth. If you are a young adult with a college degree, you almost certainly have a negative net worth due to student loans. This is completely normal.
The goal of personal finance is simply to make your net worth grow over time. You do this by paying down debt (decreasing liabilities) or saving and investing (increasing assets).