What Is Net Worth and How Do You Calculate It?

Young woman preparing home budget, using laptop and calculator.
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Net worth is one metric used to evaluate your financial well-being. This number represents the difference between the value of what you own and the money you owe on it.

Understanding your net worth can help you set financial goals and monitor your progress toward them. Learn how to calculate your net worth so you can gain insight into how well you’re managing your money.

What Is Net Worth?

Net worth is a snapshot of your financial health that represents the difference between the value of your assets (what you own) and your liabilities (what you owe). If were to sell everything you own to pay off everything you owe, the amount of money you had left would be your net worth.

Understanding what net worth isn’t sheds more light on what it is. Unlike a tax return, net worth is not a yearly measure of your net earnings. In fact, it’s not based on your earnings at all.

What Is the Formula for Net Worth?

The formula for determining net worth is quite simple:

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Net Worth Formula

Net Worth = Assets ­­- Liabilities

For example, if your total assets equal $600,000 and your total liabilities equal $400,000, your net worth is $200,000.

Net worth equals assets minus liabilities

Assets and Liabilities

As noted previously, assets are things you own and liabilities are debts you owe. Schwab MoneyWise offers examples of each:

Assets

  • Home
  • Vehicles
  • Personal possessions like jewelry, furnishings and art
  • Bank account balances
  • Investment account balances
  • Cash value of insurance policies
  • Business interests

Liabilities

How To Calculate Net Worth

Before you can calculate your net worth using the formula, you need to determine the cash value of your assets and liabilities. For assets, cash value isn’t necessarily the amount you paid for an item. Rather, it’s the amount you could expect someone to pay you for it.

The values of your accounts and the balances on your loans and other debts are easy to figure out because they’re listed on your most recent statements. Determining the value of your assets, on the other hand, can be tricky. Real estate portal sites like Zillow can give you a rough estimate of your home’s value. Edmunds or the Kelley Blue Book can give you a good sense of your vehicle’s value. For valuable collections of art, antiques and other collectibles, try eBay or an online pricing guide like WorthPoint.

Here’s a look at the steps to take to calculate your net worth:

Steps To Calculate Net Worth

  1. List all your assets (cash and cash equivalents).
  2. Assign each item a cash value.
  3. Add together these values to determine your total assets.
  4. List your liabilities (money you owe).
  5. Add up the total dollar value of your liabilities.
  6. Subtract your liabilities from your assets to find your net worth.

Example

Sara has a home worth $350,000, with $150,000 left on the mortgage. She also has $3,000 in credit card debt, $1,000 in medical bills and $11,000 left on a student loan. Her savings account balance is $10,000.

Here’s a breakdown of Sara’s net worth, which comes out to $195,000:

  • Total assets: $350,000 (home value) + $10,000 (savings account balance) = $360,000
  • Total liabilities: $150,000 (mortgage debt) + $11,000 (student loan balance) + $3,000 (credit card debt) + $1,000 (medical bills) = $165,000
  • Net worth: $360,000 – $165,000 = $195,000

Why You Should Calculate Your Net Worth

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Calculating your net worth can help you assess your progress toward your financial goals. It might also show you opportunities to make changes.

For example, you might have more money in cash than you need for an emergency fund. Perhaps you could invest that money for retirement or education savings.

Likewise, your financial planner might use net worth to set goals for you, in which case your net worth becomes a measurement of your progress toward your goal. A stalled or receding net worth could be a sign that it’s time to consider different investment products or look for an additional income source.

Ideally, your net worth should increase over time as you pay down debt and increase the value of your total assets. Otherwise, you could wind up with a negative net worth, where your liabilities are worth more than your assets, and if you were to sell all your belongings, you’d still have bills to pay.

It’s a good idea to run the calculations each year to make sure you’re moving in the right direction. If you find that your liabilities increasing disproportionately to your assets, it could be time to revisit your budget.

Good To Know

Although a positive net worth serves as a strong indicator of sound financial health, there’s another factor to consider — liquidity, which measures how quickly and easily you can convert an asset to cash without affecting its value.

A reasonable level of liquidity will help you avoid taking on debt, thereby decreasing your net worth, in the event you need quick cash to cover an emergency. Your savings account has high liquidity because you can withdraw most or all of the money on demand, for free. Your home equity is far less liquid. To convert that to cash, you’d have to take out a home equity loan or sell the house, either of which takes time and incurs fees that reduce your equity.

How To Increase Your Net Worth

Net worth has just two variables: assets and liabilities. You can increase your net worth by increasing the value of your assets or reducing your liabilities.

Increase the Value of Your Assets

  • Review your budget to see if you can free up more money to save and invest.
  • Increase your income with a side gig so you have more money to save, invest or pay down debt.
  • Devote more savings to tax-advantaged assets.
  • Invest some money in index funds, which are likely to appreciate much faster than savings accounts.
  • Increase your home equity with improvements that provide a positive return on your investment.

Decrease Your Liabilities

  • Reduce your spending.
  • Pay down credit card debt.
  • Make extra principal payments on your mortgage.
  • Avoid deferring student loan payments even if you’re eligible

Look at the Big Picture

Your net worth is only one metric, and it doesn’t tell the complete story of your financial health. Your relationship to money — including how well you’re able to pay your bills and how financially secure you feel — is also part of the picture.

Company Net Worth Guides

Sarita Harbour contributed to the reporting for this article.

This article has been updated with additional reporting since its original publication.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Daria Uhlig is a personal finance, real estate and travel writer and editor with over 25 years of editorial experience. Her work has been featured on The Motley Fool, MSN, AOL, Yahoo! Finance, CNBC and USA Today. Daria studied journalism at the County College of Morris and earned a degree in communications at Centenary University, both in New Jersey.

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