The net worth formula
Net worth is a single subtraction: the value of everything you own minus everything you owe. It is the standard measure of personal financial health used by banks, lenders and the Federal Reserve.
net worth = total assets − total liabilities
Worked example
Suppose you have $398,000 in assets (cash, investments, a home and a car) and $273,500 in debts (mortgage, loans and a credit-card balance):
Total assets: 12,000 + 48,000 + 320,000 + 18,000 = $398,000.
Total liabilities: 248,000 + 22,000 + 3,500 = $273,500.
Net worth: 398,000 − 273,500 = $124,500.
What to include
| Assets (what you own) | Liabilities (what you owe) |
|---|---|
| Cash, checking & savings | Mortgage balance |
| 401(k), IRA, brokerage | Car & personal loans |
| Home market value | Student loans |
| Vehicles & valuables | Credit-card balances |
| Business equity | Medical & other debt |
Tip: use current market values for assets (what you could sell for today) and current payoff balances for debts — not the original purchase price or loan amount. The U.S. Federal Reserve's Survey of Consumer Finances measures household net worth the same way.
Why track it over time
A single net-worth figure means little on its own; the value is in the trend. Recalculating every few months shows whether you are building wealth (net worth rising) or slipping (debts growing faster than assets). It also gives you an asset-to-debt ratio — total assets divided by total liabilities — where a number above 1 means you own more than you owe.