Net worth = total assets minus total liabilities. That is the answer to what is the formula for networth, in one line. Add up everything you own that has a monetary value, add up everything you owe, and subtract the second from the first.
Let’s do it with a simple example
Here is a made-up household to show the arithmetic.
- Checking and savings: $12,000
- Retirement account: $40,000
- Car, current value: $9,000
- Home, estimated market value: $250,000
Total assets: $311,000.
- Mortgage balance: $190,000
- Car loan: $5,000
- Credit card balance: $2,000
- Student loan: $14,000
Total liabilities: $211,000.
Net worth: $311,000 minus $211,000, which equals $100,000.
These numbers are only for illustration, not a benchmark.
What counts as an asset
Think about things you could, in principle, turn into cash:
- Cash and bank accounts
- Investments, such as stocks, funds and bonds
- Retirement accounts
- Property, using a realistic market value
- Vehicles, at current resale value, not what you paid
- Business ownership, valued conservatively
- Valuable items such as jewellery or collectibles, if they are worth selling
Leave out everyday belongings such as clothes and furniture unless they have real resale value. Many people ignore them to keep the figure conservative.
What counts as a liability
- Mortgage and home equity loans
- Car loans
- Student loans
- Credit card balances
- Personal loans and medical debt
- Any money owed in taxes
Monthly bills you have not yet incurred, like next month’s rent, are not liabilities in this calculation.
Step by step: what is the formula for networth in practice
- Gather statements. Bank, investment, retirement, loan and card statements, all dated close together.
- List assets. Put each in a spreadsheet with its current value.
- List liabilities. Use the outstanding balance, not the monthly payment.
- Subtract. Assets minus liabilities.
- Record the date. Net worth is a snapshot, so a date is part of the answer.
Can net worth be negative?
Yes. If you owe more than you own, net worth is negative. That is common for recent graduates with student loans or people early in a career. It is not a verdict on you. The useful thing is the trend: is the number rising over time?
Common mistakes
- Using what you paid for something instead of what it is worth now
- Forgetting a debt, such as an old store card
- Counting a home at an optimistic price
- Mixing up net worth and income. Income is what you earn in a period, while net worth is a stock at one moment
- Counting money you cannot easily access without noting any penalties
How often to check
Many people check once or twice a year, or every quarter if they are paying down debt. Weekly checks tend to create noise, since markets move daily.
Net worth for a business
Companies use a similar idea. The balance sheet equation says assets minus liabilities equals equity, sometimes called book value or shareholders’ equity. For a listed company this is distinct from market value, which depends on share price.
Using the number
Net worth helps you see progress, but it does not tell you everything. Two people with the same figure can have very different situations: one with mostly home equity, another with liquid savings. Looking at a mix, such as emergency savings and debt ratios, adds context. For how typical households compare, the Federal Reserve’s Survey of Consumer Finances publishes median and average figures by age group, and it is worth a look if you want a benchmark.
A quick note on liquid versus total
Some people prefer to track liquid net worth, which leaves out assets that are hard to sell, such as the family home or a business. It is a stricter measure, and it answers a different question: how much could I get at without delay? Both versions are legitimate as long as you say which one you are using and stay consistent from one check to the next.
Why the same number can feel very different
A net worth of $100,000 means one thing to a 25-year-old and another to a 60-year-old. Age, income stability, dependants and cost of living all change how comfortable a figure is. That is why benchmark tables are broken down by age group, and why comparing yourself with a neighbour or a celebrity tells you little. Compare yourself with your own past figures instead.
Quick recap
- Formula: assets minus liabilities
- Use current values and a single date
- Negative results are possible and common early on
- Track the trend, not just the number
This article is general information, not financial advice.
Related reading: What Is Obamas Networth? Where His Money Comes From.
