Net worth

Two lists and one subtraction

Assets are things you own that have money value: cash and savings, a car, a retirement account, investments. Liabilities are what you owe: a car loan, student loans, a credit card balance.

Add up each list, then subtract: assets − liabilities = net worth. If you own more than you owe, it's positive. If you owe more than you own, it's negative.

Sam's numbers

Sam (a made-up example) has:

• Assets: $2,000 savings + a car worth $8,000 + $5,000 in a retirement account = $15,000
• Liabilities: $6,000 left on the car loan + $20,000 in student loans = $26,000

$15,000 − $26,000 = −$11,000. Sam's net worth is negative eleven thousand dollars.

Negative isn't a grade

A negative net worth is common early in adult life, especially with student loans: you take on the debt years before your income and savings catch up. Net worth is a snapshot, not a score on you as a person.

It climbs two ways: paying debt down shrinks the liabilities, and saving more grows the assets. Either one moves the number up, and over a few years it can cross zero.

Use today's values

• For each asset, use what it's worth now: what the car would sell for today, not what you paid.
• For each debt, use the remaining balance, not the monthly payment.

Try it yourself

Make two columns on paper or in a notes app. List what you own with today's values, and what you owe with each balance (check your bank, loan and card apps). Add each column and subtract. Write the number and the date down, and do it again in six months to see which way it moved.

Good to know

• Net worth = total assets − total liabilities (the SEC's net worth statement; the Federal Reserve's Survey of Consumer Finances uses the same idea).
• Sam is a made-up example with round numbers.
• Use current market value for assets and the remaining balance on debts.
• Retirement accounts may owe tax or penalties if withdrawn early, so their real value can be lower; some people leave them out or show them separately.
• Negative net worth is common for young adults with student loans; the Federal Reserve's survey reports net worth by age and finds low or negative net worth at the bottom of the distribution.
• Checking once or twice a year is a common suggestion, not a rule.
• The same idea works in Canada.
• Educational only, not financial advice.

Why it matters for you

One number shows whether your money is moving in the right direction. Tracking it over time matters more than any single reading. Next, we'll look at what every purchase really costs you.