What Is Net Worth and How to Calculate Yours (With Examples)
Your credit score tells you how well you manage debt. Your income tells you how much you earn. But neither one tells you whether you're actually building wealth. That's what net worth is for.
Net worth is a single number that represents the total picture of your finances — not just what comes in, but what you actually keep and own.
What Net Worth Is
Net worth is the difference between what you own (your assets) and what you owe (your liabilities):
Net Worth = Total Assets − Total Liabilities
If you own a $300,000 home with a $200,000 mortgage, have $15,000 in a savings account, $50,000 in a 401(k), and $8,000 in car debt:
Assets: $300,000 (home) + $15,000 (savings) + $50,000 (retirement) + $12,000 (car value) = $377,000
Liabilities: $200,000 (mortgage) + $8,000 (car loan) = $208,000
Net Worth: $377,000 − $208,000 = $169,000
This number tells you more about your financial position than your income or spending habits alone.
Why Net Worth Matters More Than Income
Two people can earn $80,000 a year and have completely different financial situations:
Person A earns $80,000, spends $75,000, has no savings, and $25,000 in credit card debt. Net worth: negative.
Person B earns $80,000, spends $65,000, has $30,000 in retirement savings, $10,000 in savings, and no debt. Net worth: $40,000+.
Same income. Completely different financial reality. Net worth captures the difference.
It's also a better long-term health indicator. A high income can disappear overnight. Net worth — real assets with no debt — persists.
How to Calculate Your Net Worth
Step 1: List all your assets
Assets are things of value you own:
- Checking and savings account balances
- Retirement accounts (401(k), IRA, Roth IRA) — use current market value
- Brokerage/investment accounts
- Home value (use a realistic current market estimate, not what you paid)
- Vehicles (Kelley Blue Book private party value)
- Cash value life insurance
- Business equity (if you own a business)
- Any other property or investments
Step 2: List all your liabilities
Liabilities are everything you owe:
- Mortgage balance (call your lender or check your statement)
- Car loans
- Student loans
- Credit card balances
- Personal loans
- Medical debt
- Any other money you owe
Step 3: Subtract
Assets − Liabilities = Net Worth.
Don't include household items like furniture or electronics unless they're worth significant money. These are too variable and hard to liquidate.
What Is a "Good" Net Worth?
Net worth norms vary by age, income, cost of living, and family situation, so comparisons are rough. But here are general benchmarks from financial planners:
By age (rough targets for middle-income earners):
- Age 25: $0–$25,000 (many people are negative at this age due to student loans)
- Age 30: $50,000–$100,000
- Age 35: $100,000–$200,000
- Age 40: $200,000–$400,000
- Age 50: $400,000–$750,000
- Age 60: $750,000–$1.5 million
A common rule of thumb: by age 35, aim to have saved 1x your annual salary. By 45, 3x. By 55, 5x. By 65, 7x or more.
These are medians and targets, not requirements. What matters more is your trajectory — is your net worth growing consistently each year?
If Your Net Worth Is Negative
Negative net worth is normal in your 20s, especially with student loans. It doesn't mean you're failing — it means your debts currently exceed your assets, which is mathematically common when you're young and just starting out.
What matters is direction. If your net worth is negative but improving month over month, you're on the right path.
Strategies to move toward positive:
- Pay down high-interest debt — this reduces liabilities faster than almost anything else
- Build savings — even small amounts improve the picture
- Avoid taking on new debt for depreciating things
Growing Your Net Worth Over Time
Net worth grows through three levers:
1. Earn more — Higher income with controlled spending accelerates everything.
2. Spend less — The gap between income and spending is what gets saved and invested. Closing that gap even slightly has compounding effects.
3. Let assets grow — Money invested in index funds, retirement accounts, or appreciating real estate grows over time. The longer it grows, the more powerful compound returns become.
Most people focus only on the first lever — earning more. But a person who earns $60,000 and saves 20% builds wealth faster than someone who earns $100,000 and saves 5%.
How to Track Net Worth
Calculate it monthly or quarterly. You don't need fancy software — a simple spreadsheet works:
Column 1: Asset/Liability category Column 2: Amount Track the total over time.
Free tools that make this easier:
- Monarch Money — links to accounts, tracks net worth automatically
- Personal Capital (Empower) — free net worth tracking with investment analysis
- YNAB — primarily a budget tool but tracks account balances
The act of tracking matters as much as the number itself. When you watch your net worth each month, you make different choices. Money feels more real when you see exactly where it stands.
The Wealth-Building Insight
The biggest insight from tracking net worth is that wealth is not just about income — it's about the spread between what you earn and what you keep.
A person who earns modestly but saves consistently over 30 years will often end up with more net worth than a high earner who spends everything they make. Compound growth is patient and powerful, but it only works if you give it something to compound.
Start tracking your net worth today. It takes 20 minutes to set up and will change how you think about money.