What is net worth?

Net worth is a key indicator of a person’s or business’s financial health and represents the total value of all assets minus any liabilities. Put simply, net worth is what you own minus what you owe. 

Knowing how to calculate net worth can be a useful way to evaluate an individual’s or a company’s financial position and provide insight into the steps needed to achieve specific financial goals.

What you’ll learn:

• Net worth is the total value of assets minus any liabilities or debt.

• Net worth can be a helpful snapshot of a person’s or company’s wealth.

• Positive net worth might be a sign of good financial health.

• Negative net worth might be a sign of poor financial health.

Net worth is calculated by subtracting any debts and liabilities from the total value of your assets. In other words, subtract what you owe from what you own. 

To do this, you’ll first need to add up your assets and liabilities, which can take a little bit of time. Here’s how to calculate net worth.

Add up the total value of anything that could be considered an asset. An asset is anything with monetary value. This can include things like:

• Cash: Checking and savings accounts 

• Investments: Stocks, bonds, mutual funds and retirement accounts

• Personal property: Real estate, vehicles and jewelry

A liability is a debt or financial obligation, like a loan or mortgage. It’s basically anything you owe. Liabilities can include things like:

• Credit card debt

• Car loans

• Personal loans

• Student loans

• Home mortgage

To calculate the total amount of your liabilities, add up all your debts.

To get your net worth, subtract your liabilities from your assets. When you do this, you’ll get either:

• Positive net worth: Your assets are greater than your liabilities.

• Negative net worth: Your liabilities are greater than your assets.

This final figure gives you a clear snapshot of your overall financial position at a given time.

The following table shows the national average of net worth by age according to the most recent data from a Federal Reserve survey:

Net worth usually rises over time as savings and investments build, but it may decline in retirement as people rely on fixed incomes while costs—such as healthcare and living expenses—increase.

Growing your net worth means increasing assets while minimizing liabilities. If you’re looking to improve your net worth, here are a few steps you can take.

Keeping a budget can help you see where your money is going and help you identify areas where you can save. More debt can mean more liabilities, which can lower your overall net worth. So tracking your spending and sticking to a budget can help.

Prioritize paying down some of your existing debts. You could work toward paying off credit card debt, for example. This can help lower your liabilities, which can increase your overall net worth.

If you don’t have a lot of debt, then it may be a good idea to consider adding more money to an emergency fund, savings account or retirement fund.

And money in savings and retirement accounts is considered an asset, so more money in these accounts will help your overall net worth. Just be sure to check the terms and conditions of a savings account before you sign up, and try to avoid accounts that charge unnecessary fees.

If you’re renting a home or apartment, the money you pay each month for rent isn’t doing anything to help you build your net worth. There’s a lot more that goes into it, but if you’re in a position to purchase a home, it can help you build your net worth as you build equity.

Though there usually isn’t a quick return on investment, if your investments pay off, they will contribute to your total assets over time. This helps grow your net worth. Stocks, bonds, mutual funds and 401(k)s all fall into this category. 

But investing also comes with risk. So be sure to do your research and, if possible, talk to a financial expert.

Calculating net worth can be a helpful way to gauge your overall wealth and financial health. It’s as simple as subtracting your liabilities from your assets. 

And no matter what your net worth is right now, there are always things you can do to improve upon and build your net worth, like paying down debt or increasing your savings. 

If you’re serious about building your net worth, check out this guide: How to build wealth: 10 tips that can help.