How to calculate net worth — and why your net worth actually matters


Lots of numbers you know by heart, like your street address, how much money you make and the year you were born. Here's one more you should learn too: your net worth.

Although it's exact amount changes every day, your net worth serves as snapshot of your financial health at any given moment. Knowing where you stand helps you set financial goals and track your progress towards financial freedom — or at least keeps you from living out your golden years in your kid's garage.

Here's everything you need to know about your net worth:

What is your net worth? 

In a nutshell, your net worth is a measure of the current value of all your assets minus your debts.

"Net worth is the most accurate measure of wealth. Wealth is what is left over after all of your bills are paid — and that’s precisely what net worth is all about," Investor Junkie explains.

If you have student loan debt , chances are you'll start out with a negative net worth. But as you pay that off, make investments and acquire a house, a car, jewelry, furniture and other property and possessions, your net worth should grow. At least that's the idea.

How do you calculate your net worth? 

Start by adding up your assets, including money in your checking account and savings account, the current fair market value of real estate you own, the market value of your car and valuable assets like fancy jewelry and investment art (the framed posters on your wall from college don't count). Then count how much money is in your wallet.

Make sure to calculate the current value of used items, not what you originally paid for them. That fancy flat screen TV you bought 2 years ago for $1000, for example, is only worth what you can sell it for on Craigslist today.

Next, add up the value of all your debts including credit card debt, student loan debt, medical debt and all the money you owe mom and dad. If you aren't sure about your loans pull a copy of your credit report from Annual Credit Report to check your outstanding balances. You can also use an online calculator to make sure you didn't leave anything out.

Now subtract your debts from your assets: That is your current net worth.

Truth time: See how your net worth compares

Once you've got your number, it's fun to see how that compares to others your age. The median net worth of Americans under 35, for example, was just $4,151 if you exclude home equity or $6,676 if you factor it in, according to census data compiled by the Motley Fool. If you're between 35 and 44, that number goes up to $14,226 and $35,000, respectively.

To compare your net worth based on others your age who have the same income, try this calculator from CNN Money, which shows that the median net worth for a 28-year-old with a $35,000 annual income is $8,525.

As long as you're paying off student debt, you may not see positive numbers for a while, but don't be discouraged. Money you put into a company 401(k) grows exponentially over time. And you'll pay off those loans eventually.

Why your net worth matters 

Knowing your net worth is important for a lot of reasons, from giving you an accurate picture of how much you actually own (versus how much of your assets the bank owns) to motivating you to spend your money on assets instead of just stuff.

It can also help you set debt repayment goals, see how well your investments are growing over time and give you a better idea of how close you are to financial independence.

Your net worth is a yardstick to measure how close you are to financial freedom. 


How can you grow your net worth?

To move the needle on your net worth, you need either to grow your assets, reduce your debt or both.

The easiest way to grow your assets is by setting 15% of your income into a retirement account at work or on your own through an IRA. You can also check out Mic's guide to investing in stocks and funds for the first time.

When it comes to paying off debt, first you need to tame your budget. Try this 5-minute guide to get you started. Over time, you can become debt free and have enough assets that you'll be sitting pretty by the time you retire.

Sign up for The Payoff — your weekly crash course on how to live your best financial life. Additionally, for all your burning money questions, check out Mic's creditsavingscareerinvesting and health care hubs for more information — that pays off.