It’s a question many people ask themselves, often without finding a clear answer: “Am I on the right track financially?” While a high salary or a healthy bank account balance can feel good, they only tell part of the story. A more comprehensive and accurate measure of your financial health is your net worth. Simply put, net worth is what you own minus what you owe. Tracking it gives you a clear snapshot of your current financial standing and serves as a powerful tool for planning your future. It’s like a compass that shows you whether you are moving closer to your financial goals or drifting away from them.
🔗 Learn more about calculating net worth on Investopedia
🔗 Explore free tools like Empower to track your net worth
What is Net Worth, Exactly?
Your net worth is a single number that represents your total financial position at a given moment. To calculate it, you must first identify and add up all your assets. An asset is anything you own that has monetary value. This includes your cash, money in savings and investment accounts, retirement funds, real estate, and the value of any vehicles you own.
Next, you add up all your liabilities, which are essentially all of your debts. Common liabilities include mortgages, student loans, car loans, credit card debt, and any personal loans you may have.
The final step is straightforward: subtract your total liabilities from your total assets. The resulting number is your net worth. It is a powerful figure because it shows the complete picture, including both your successes in saving and investing, and your challenges with debt.
How to Calculate Your Net Worth
Calculating your net worth is simpler than it might seem, and it does not require a financial expert. You can do it yourself with a spreadsheet or even just a pen and paper.
List Your Assets:
Start a list and gather the current values of everything you own:
- Cash, checking, and savings account balances
- Investment account balances (stocks, bonds, mutual funds)
- Retirement account balances (401(k), IRA)
- The market value of your home or other real estate
- The market value of your car
List Your Liabilities:
Create a second list of all your debts:
- Mortgage balance
- Credit card balances
- Student loan balances
- Car loan balances
- Any other personal loans
Do the Math:
Subtract the total of your liabilities from the total of your assets.
For example, if your assets total $250,000 and your liabilities total $150,000, your net worth is $100,000. It is a simple calculation that provides a profound insight into your financial situation.
🔗 Try this free net worth calculator
🔗 Download a personal finance spreadsheet template
Why Tracking Your Net Worth Matters
Tracking your net worth is one of the most effective things you can do to take control of your financial life. It turns vague financial hopes into a tangible number you can improve over time. By calculating your net worth once a quarter or once a year, you can track your progress. When the number goes up, you know your financial decisions are working. When it goes down, it signals that you need to re-evaluate your spending or saving habits.
Seeing your net worth grow over time can also be a powerful motivator. It shows you that your hard work is paying off and that you are making real progress toward your goals, whether that is buying a home, saving for retirement, or achieving financial independence. It gives you a sense of purpose beyond just paying bills.
Tracking your net worth is not about comparing yourself to others. It is about understanding your own financial story and making sure you are the one writing it