The simplest financial metric
Net worth is the most comprehensive single number in personal finance: everything you own minus everything you owe.
Assets (what you own): Bank accounts, investments, retirement accounts, home equity, vehicles, valuable property.
Liabilities (what you owe): Mortgages, car loans, student loans, credit card balances, personal loans, any other debts.
Net worth = Assets - Liabilities
A positive net worth means you own more than you owe. A negative net worth (common for young adults with student loans) means debts exceed assets. The number itself matters less than its direction over time.
Why net worth beats budgeting
Budgeting tracks flows: money in, money out, categorized and monitored. It’s useful but granular—you can win every month on paper while making no progress overall.
Net worth tracks position: where you stand right now, compared to where you stood before. It captures the cumulative result of all financial decisions.
Someone might budget meticulously yet see no net worth growth because they’re not tracking the big picture. Someone else might ignore daily spending but watch their net worth climb through automated savings and investment growth.
Both approaches have value. But if you track only one thing, net worth tells you whether you’re actually building wealth.
Calculating your net worth
Step 1: List all assets with current values
Liquid assets:
- Checking accounts
- Savings accounts (including high-yield accounts)
- Money market accounts
- Cash value of life insurance (if applicable)
Investments:
- Retirement accounts (401k, IRA, etc.)
- Brokerage accounts
- HSA (if invested)
- 529 college savings
Property:
- Home (current market value, not purchase price)
- Vehicles (realistic resale value, not what you paid)
- Other valuable property (if easily sellable)
Step 2: List all liabilities with current balances
- Mortgage balance
- Home equity loan/HELOC
- Car loans
- Student loans
- Credit card balances
- Personal loans
- Medical debt
- Any other amounts owed
Step 3: Subtract
Total assets - Total liabilities = Net worth
That’s it. One number.
What to include (and exclude)
Include: Assets that have clear, verifiable value and could be converted to cash if needed. Investment account balances are straightforward. Home values require estimation—Zillow or recent comparable sales provide reasonable approximations.
Exclude (or treat carefully):
- Personal possessions (furniture, clothes, electronics): These have minimal resale value. Including them inflates net worth unrealistically.
- Vehicles: Include at realistic private-sale value, not what you paid. Cars depreciate rapidly.
- Future income: Your salary isn’t an asset. Only wealth you currently possess counts.
- Social Security or pension values: Some calculations include these as assets. For simple tracking, excluding them is cleaner.
Consistency matters more than precision. If you include your car at $15,000 in January, include it (adjusted for depreciation) in future calculations. Changing methodology makes trends meaningless.
Tracking over time
Net worth on any single day is just a snapshot. The power comes from tracking it over time.
Monthly tracking shows short-term progress. Investment fluctuations create noise, but trends emerge over quarters.
Quarterly tracking smooths volatility while maintaining accountability. Four data points per year reveal whether progress is happening.
Annual tracking is minimum viable tracking. Once per year, calculate your number. Compare to last year. Are you moving forward?
Tools for tracking:
- Simple spreadsheet: Date, total assets, total liabilities, net worth. One row per tracking period.
- Aggregator apps: Personal Capital, Mint, and similar tools pull account balances automatically and track net worth over time.
- Manual calculation: A piece of paper works fine. The method matters less than consistency.
Interpreting the numbers
Negative net worth is common early in adult life. Student loans create liabilities before career income builds assets. The goal is moving toward zero, then positive.
Slow growth is still growth. Someone whose net worth increases $5,000 annually is building wealth, even if the pace feels slow.
Declining net worth signals a problem. Either income doesn’t cover expenses (creating debt), or assets are being depleted. This warrants attention.
Volatility is normal when investments are a significant portion of assets. A market drop might reduce net worth by 15% in a month. This isn’t a crisis—it’s normal fluctuation that reverses over time.
The Federal Reserve’s Survey of Consumer Finances provides data on net worth by age, income, and demographics if you want context for your number. Comparison to averages is less useful than comparison to your own past performance.
The net worth mindset
Tracking net worth shifts financial thinking from short-term to long-term:
Debt decisions: Taking on debt isn’t inherently bad—it’s bad when liabilities grow faster than assets. A mortgage that builds home equity can increase net worth. Consumer debt that funds consumption decreases it.
Spending decisions: Major purchases either preserve or reduce net worth. A $30,000 car that depreciates to $20,000 in three years reduces net worth by $10,000 plus interest. Understanding this changes how the purchase feels.
Saving and investing decisions: Every dollar saved or invested increases the asset side. Watching net worth climb provides motivation that daily budgeting doesn’t.
Income decisions: Higher income only improves net worth if some portion is captured as assets rather than fully consumed. Income growth without net worth growth is running in place.
Common tracking mistakes
Obsessing over short-term changes: Daily net worth tracking creates anxiety from investment volatility. Monthly is granular enough.
Including illiquid or questionable assets: That art collection or vintage guitar might be worth something—but probably less than you think, and selling it isn’t practical. Exclude or heavily discount illiquid assets.
Ignoring retirement accounts: “I can’t touch that until 65” doesn’t make it not yours. Retirement accounts absolutely count as assets.
Comparing to others: Net worth varies enormously based on age, income history, geography, family situation, and luck. Your trajectory matters more than how it compares to someone else’s.
Getting started
Calculate your net worth today. Write it down. Set a calendar reminder to recalculate monthly or quarterly.
That’s the entire system. One number, tracked over time. The simplest possible approach to knowing whether you’re building wealth.
Everything else—budgeting, investing, debt payoff—feeds into this single metric. Net worth is the scoreboard that shows whether the game is being won.
Net worth milestones
While comparisons to others are less useful than personal progress, certain milestones mark meaningful achievement:
$0 (crossing from negative to positive): A significant psychological milestone for those starting with debt exceeding assets.
$100,000: The first large round number. Often takes longer to reach than subsequent $100,000 increments due to compounding effects.
One year of expenses: This represents true financial security—ability to survive a year without income.
Investment income covers expenses: Financial independence territory. Net worth generates enough returns to sustain lifestyle indefinitely.
These milestones provide motivation markers on a long journey. Celebrating them acknowledges progress while keeping focus on continued growth.
Net worth and life decisions
Tracking net worth over time reveals patterns that inform decisions:
Career moves: Did the new job increase net worth trajectory? If income rose but net worth growth didn’t, lifestyle inflation may have offset the gain.
Major purchases: How did buying a car or house affect net worth? Was the impact acceptable given other priorities?
Life transitions: Marriage, children, relocation—how did these affect financial position? Understanding the impact helps plan for future transitions.
Net worth tracking isn’t just measurement. It’s feedback that helps calibrate decisions against financial goals. The number itself is less important than what it reveals about the effectiveness of your financial choices.