Net Worth

To calculate net worth, add up all your assets, such as cash, savings, investments, retirement accounts, property and vehicles. Then add up all your liabilities, such as mortgages, car loans, student loans and credit card balances. Subtract the second total from the first.

For example, suppose you have 8,000 in a bank account, 25,000 in investments and a car worth 12,000, giving assets of 45,000. You owe 15,000 on a student loan and 3,000 on a credit card, giving liabilities of 18,000. Your net worth is 27,000.

Net worth can be negative, which is common for young people with student loans or recent graduates who have not yet built savings. A negative figure is not a disaster in itself; what matters most is the direction it is moving over time.

Tracking net worth once or twice a year shows whether your finances are improving. Paying down debt and saving both increase it, even if your income stays the same. Net worth for a person works on the same principle as equity on a company's balance sheet.