Key Takeaways
Net worth
Net worth is the total value of everything you own minus the total amount of everything you owe. If your assets exceed your debts, your net worth is positive. If your debts exceed your assets, it is negative. It is a single number that summarizes your overall financial position at a given point in time.
In accounting, net worth is equivalent to owners' equity on a personal balance sheet: Assets minus Liabilities = Net Worth.
The basic formula, explained simply
Net worth comes down to one equation: Assets minus Liabilities = Net Worth.
Assets are things you own that have monetary value. Common examples include cash in a checking or savings account, investments, retirement account balances, the market value of a home you own, and a vehicle. Liabilities are amounts you owe to others: a mortgage balance, student loans, auto loans, credit card debt, or any other outstanding obligation.
Subtract the total of your liabilities from the total of your assets. The result is your net worth. If your assets total $80,000 and your liabilities total $55,000, your net worth is $25,000. If your liabilities are larger, the result is a negative number, which simply means you currently owe more than you own.
Start with a rough estimate
Your first net worth calculation does not need to be exact. Gather your most recent bank statements, loan statements, and retirement account balances, and use those figures. A reasonable approximation is far more useful than waiting until you have perfect data. You can refine the numbers each time you recalculate.
How to calculate your net worth step by step
You do not need special software to do this. A spreadsheet or even a piece of paper works fine.
- List every asset and its current estimated value. Use today's market value, not the original purchase price.
- List every liability and its current outstanding balance. Include even small balances.
- Add up all asset values to get a total.
- Add up all liability balances to get a total.
- Subtract total liabilities from total assets.
A few things worth noting during this process. For assets like a home or a car, use a realistic current market estimate rather than what you paid. For investments, use the current account balance, which fluctuates with the market. For retirement accounts, the account statement balance is the figure to use, but remember that taxes will apply to withdrawals.
You do not need to be perfectly precise. A reasonable estimate gives you a useful starting point.
Why a negative net worth is not the end of the story
Many people, particularly those early in their careers, have a negative net worth. Student loan debt is a common reason. Carrying a mortgage on a home that has appreciated less than the loan balance is another. This does not indicate failure.
What matters most is the direction your net worth is moving. Someone with a net worth of negative $30,000 who paid down $5,000 in debt this year is in a better position than they were twelve months ago. Progress, not the current number, is the signal to watch.
$192,700
Median U.S. household net worth
According to the Federal Reserve's 2022 Survey of Consumer Finances, the median net worth of American families was $192,700.
1 in 5
U.S. families with zero or negative net worth
The Federal Reserve's 2022 Survey of Consumer Finances found that roughly one in five American families had zero or negative net worth.
Circumstances that push net worth negative early in life, such as education debt taken on to increase earning potential, often correct over time as income rises and debts shrink. The calculation is a snapshot of today, not a fixed outcome.
How to grow your net worth over time
There are two levers: increase assets or reduce liabilities. In practice, most people work both at once.
Paying down debt directly reduces your liabilities, which increases net worth dollar for dollar. Contributing to a savings or investment account adds to your assets. Even modest, consistent contributions add up because money invested has the potential to grow over time. (Past performance does not guarantee future results, and all investments carry risk.)
Avoiding lifestyle inflation, meaning spending more every time income rises, also helps. If your income increases by $300 per month and you redirect that to savings rather than spending, your assets grow faster than your liabilities.
Keeping a monthly budget makes both levers easier to manage. When you see exactly where money goes each month, you can make deliberate choices about how much goes toward debt repayment versus saving.
This article is for general informational and educational purposes only. It is not personalized financial, investment, tax, or legal advice. For guidance specific to your situation, consult a qualified financial adviser, accountant, or attorney.