What Is Net Worth, How to Calculate It, and Why Negative Is Normal
If you could only track one number to know whether your finances are moving in the right direction, it should be your net worth.
Income tells you what comes in. A budget tells you where it goes. Net worth tells you whether, over time, you're actually getting ahead.
The formula
Net worth = What you own − What you owe
That's it. Add up the value of everything you own, subtract everything you owe, and the result is your net worth.
Step 1: Add up what you own (assets)
Include:
- Checking and savings balances
- Cash
- Retirement accounts: 401(k), 403(b), IRA, Roth IRA
- Other investments: brokerage accounts, HSAs that are invested
- Home value, if you own one. Use a conservative estimate, not the highest number you've seen online.
- Vehicle value. Use a realistic private-party value from a pricing guide.
- Other things with real resale value, if they're significant
Don't include everyday belongings like furniture and clothes. They're worth far less than you paid, and counting them makes the number less useful.
Step 2: Add up what you owe (liabilities)
Include every debt, using the current payoff balance:
- Credit cards
- Car loans
- Student loans
- Mortgage
- Personal loans
- Medical debt
- Buy-now-pay-later balances
- Money owed to family, if you intend to pay it back
Step 3: Subtract
Let's say you own:
- $1,200 checking
- $2,100 savings
- $9,300 in a 401(k)
- $8,800 car value
That's $21,400 in assets. And you owe:
- $3,430 on credit cards
- $11,100 on a car loan
- $18,260 in student loans
- $900 in medical bills
That's $33,690 in debt.
Net worth = $21,400 − $33,690 = −$12,290
Negative net worth is common, and it's fine
If your number is negative, you're not alone. Student loans and car loans push a lot of people below zero, especially early in their careers. A negative net worth doesn't mean you're bad with money. It means you're at the start of the climb.
What matters isn't where the number is today. It's which direction it's moving.
Track it monthly
Pick the same day every month, maybe the first, and update your numbers. Over time you'll see:
- debt balances shrinking
- savings and retirement growing
- the gap closing
In our example, if this household pays $200 a month extra toward debt and keeps saving, their net worth could improve by well over $1,000 a month as debt falls and savings grow. Watching the number climb from −$12,000 to −$10,000 to −$8,000 is one of the most motivating things in personal finance, because it's proof the plan is working.
A few tips
- Be honest and consistent. Use the same method every month so changes reflect real progress, not new estimates.
- Don't panic about market swings. Retirement accounts will move up and down. Focus on the trend over a year, not a month.
- Celebrate milestones. Crossing from negative to zero is a big deal. So is your first $10,000 positive.
Make it automatic
The Squared Roots Money Toolkit has a 12-month net worth tracker. Enter your balances once a month and it calculates your net worth, your change from last month and charts your progress over the year. Get the toolkit.