Why Calculate Net Worth?
Net worth is viewed as an objective measure of financial health, though it can be misleading sometimes. It is often correlated with a person's ability to weather financial shocks. The lower your net worth, the less likely you are to be able to handle a financial emergency or navigate unexpected financial challenges.
You can use net worth as feedback about your progress in building wealth over time.
Net Worth vs Other Personal Finance Measures
Typically, we talk about the subjective measures of financial well-being in the Student Money Management Center, because we're focused on helping our learners understand the nuance of financial decisions. However, traditional, objective financial measures, like net worth, can also be helpful in tracking our progress towards financial goals and gaining confidence.
Objective vs Subjective - Both Can Be Valuable
People are not emotionless robots that always make rational or logical decisions so relying solely on objective measures to track your financial health will not give you a holistic picture of your financial well-being.
Examples of Objective Personal Finance Measures
Beyond net worth, you may want to track:
- Debt-to-income ratio: gross monthly income - monthly debt payments
- Emergency fund: liquid savings amount; good goal is 3-12 months of expenses
- Credit scores: a numerical representation of your creditworthiness*
- Savings rate: percentage of income dedicated to savings goals
- Cash flow: regularly spending less than your income in a period
*There are hundreds of credit scores out there. FICO scores are used by as much as 90% of lenders, but the company sells several different scores so the score provided by your bank or credit union may not be the same used when you apply for credit (FICO, n.d.). Your financial institution may not even provide a FICO score, it may be a VantageScore or other company's score (VantageScore Solutions, n.d.).
Examples of Subjective Personal Finance Measures
There are several measures used to capture someone's perception of their financial situation, including (but not limited to):
- Financial satisfaction
- Perceived financial security
- Financial confidence
- Subjective financial fragility
- Subjective financial scarcity
- Locus of control
- Financial well-being
You may have heard about tools for measuring financial well-being on the Making Cents of Money podcast in:
Financial well-being describes how a person feels about their current financial state and future financial capacity for accomplishing their goals or overcoming financial hurdles. The Consumer Financial Protection Bureau (CFPB) created a tool to help consumers find out their financial well-being score after extensive research on what contributes to a person's overall financial well-being (Consumer Financial Protection Bureau, n.d.).
How to Calculate Net Worth?
In order to calculate net worth, you must add up the value of all your assets (e.g., car, house, personal valuables, etc.) and subtract liabilities, or debt, from that total value. The calculation provides a measure of your overall financial wealth at a given point in time.
Assets
−Liabilities
=Net Worth
Assets
Assets are anything of value that you own. They can include liquid assets like cash and savings, as well as less liquid assets like property, investments, and personal possessions. Understanding and accurately valuing your assets is the first step in calculating your net worth.
Savings & Cash
Cash and savings accounts represent the most liquid form of assets. This includes money in checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). Liquid assets are particularly important because they provide immediate access to funds for emergencies or opportunities.
Investments
Investment assets include stocks, bonds, mutual funds, exchange-traded funds (ETFs), retirement accounts (such as 401(k)s, IRAs, and Roth IRAs), and other securities. These assets typically have the potential to grow over time and can be an important component of wealth building.
When calculating net worth, it is important to use the current market value of your investments, which can fluctuate in real time based on market conditions.
Real Property
"Real property" generally refers to real estate like land and permanent improvements placed there (Illinois Department of Revenue, n.d.). For example, a single family home on land and any additional permanent buildings or structures, like a garage or landscaping, added to it is considered a piece of real property.
This type of asset could include your home residence or rental properties that you own. It is considered an asset class of its own but because of its unique nature, it's listed separately here. Real property values can appreciate or depreciate based on market conditions, location, and property maintenance.
Personal Property & Valuables
Your vehicle, clothes, laptop, furniture, and other personal items have some value and you can sell those items for cash (to the right buyer).
However, they tend to depreciate, or lose value, over time. As a result, most people that do calculate their net worth regularly may only look up the depreciated value of larger items like vehicles or they may estimate the value of high-end art or jewelry they own to include as part of the net worth calculation.
For most individuals, personal property represents a relatively small portion of total net worth and may not be worth the effort to value precisely.
Debts Owed to You
Technically, if someone owes you a debt, that is considered an asset if it is legally enforceable. This could include personal loans you've made to friends or family members, or money owed to you from a business transaction.
These should only be counted if there is a reasonable expectation of repayment.
Liabilities
Liabilities represent all the money you owe to creditors. These debts reduce your net worth and often come with interest charges that can significantly increase the total amount owed over time.
Understanding your liabilities is crucial for accurate net worth calculation and financial planning.
Installment Loans
Installment loans are debts that are repaid over time with a set number of scheduled payments. These typically include a principal amount and interest, with payments that remain relatively consistent throughout the loan term.
Common types of installment loans include student loans, auto loans, mortgages, and personal loans.
Student Loans
Student loan debt represents one of the largest categories of consumer debt in the United States.
As of 2025, Americans owe approximately $1.81 trillion in federal and private student loan debt, with the average federal student loan debt balance at $39,075 (Hanson, 2025). Student loan debt can significantly impact financial decisions and delay major life milestones such as homeownership, marriage, and starting a family.
Because student loans are not associated with an asset that can be sold for an immediate cash value, those with student loans and limited assets may find they have a negative net worth. However, monitoring net worth can help you track your wealth more holistically than solely looking at your debts.
Vehicle Loans
Vehicle loans, also known as auto loans, are used to finance the purchase of cars, trucks, motorcycles, and other vehicles. These loans have terms that can go up to 84 months and are secured by the vehicle itself, meaning the lender can repossess the vehicle if payments are not made.
Vehicle values depreciate rapidly, so it's common for borrowers to owe more than their vehicle is worth early in the loan term.
Mortgage
A mortgage is a loan used to purchase real estate, with the property serving as collateral. Mortgages can have terms of 5-30 years and represent the largest debt for most households. They can also have interest rates that are fixed or variable throughout the life of the loan.
When calculating net worth, include the remaining balance owed on your mortgage as a liability. It's important to note that while your mortgage is a liability, the property itself is an asset, and the difference between the two represents your home equity.
Personal Loans
Personal loans are unsecured or secured loans that can be used for various purposes, such as debt consolidation, home improvements, or unexpected expenses.
These loans typically have fixed interest rates and repayment terms. Because personal loans are often unsecured, they may carry higher interest rates than secured loans like mortgages or auto loans.
Buy Now, Pay Later
Buy Now, Pay Later (BNPL) services have become increasingly popular, allowing consumers to split purchases into installment payments, often with zero interest if paid on time. While these services can be convenient, they can also lead to overextension if consumers take on multiple BNPL obligations simultaneously.
When calculating net worth, include any outstanding BNPL balances as liabilities.
Revolving Credit Accounts
Revolving credit accounts allow borrowers to repeatedly borrow up to a certain limit, repay, and borrow again. These accounts can have variable interest rates and minimum monthly payment requirements. The most common forms of revolving credit are credit cards and home equity lines of credit (HELOCs).
Credit Card Debt
Credit card debt is one of the most expensive forms of consumer debt due to high interest rates.
As of the third quarter of 2025, Americans owe $1.233 trillion in credit card debt, with the average credit card balance at $6,523 per borrower (Caporal, 2025). Credit card interest rates currently average above 19%, and many consumers find themselves in long-term debt cycles (Bankrate, 2025).
Calculators
There are several net worth calculators out there, like those from NerdWallet, Bankrate, Kiplinger, or AARP. Your budgeting app or financial institution may have built-in tools to help you calculate and track net worth over time.
When to Use Net Worth?
Net worth can serve as a valuable financial metric in several situations. While it provides a snapshot of your overall financial position, understanding when and how to use this measure can help you make better financial decisions and track progress toward goals (Mountain & Jones, 2024). It's particularly useful for long-term financial planning and assessing your overall financial trajectory.
Tracking
Regularly calculating and tracking your net worth provides valuable insight into your financial progress over time.
By calculating your net worth quarterly or annually, you can see whether your financial situation is improving, declining, or remaining stagnant (Mountain & Jones, 2024). This regular monitoring helps you identify trends, such as whether your assets are growing faster than your liabilities, and allows you to make timely adjustments to your financial strategies.
Research shows that net worth typically increases from the 20s through the 60s, with average net worth rising from $126,730 in the 20s to $1,576,784 in the 60s before gradually declining in retirement (Empower, 2025).
Progress Towards Wealth-Building Goals
Net worth serves as an excellent measure of progress toward long-term wealth-building goals such as retirement, financial independence, or leaving a legacy.
Unlike income, which only measures what you earn in a given period, net worth reflects the cumulative result of your earning, saving, investing, and spending decisions over time (van Rooij et al., 2011). By setting net worth targets aligned with your goals and tracking your progress, you can stay motivated and make informed decisions about saving and investing.
Variability in Value of Assets
The value of assets can fluctuate over time. Real property is subject to fluctuations in market value based on local real estate conditions, economic factors, and property-specific characteristics. Investment portfolios can experience significant volatility due to market movements, affecting the value of stocks, bonds, and mutual funds. Even personal property depreciates over time, with vehicles losing value most rapidly in their first few years of ownership.
Volatility of Investments
Investment values can change dramatically over short periods due to market conditions, economic indicators, geopolitical events, and company-specific news. Stock prices may rise or fall by significant percentages in a single day, and bond values inversely correlate with interest rate changes.
This volatility means that net worth calculations based on investment values represent a point-in-time snapshot and may look quite different just weeks or months later. Understanding this volatility is important for maintaining perspective and avoiding reactionary financial decisions based on short-term market fluctuations.
Market Value of Real Property, like a Home Residence
Real estate markets can experience significant cycles of appreciation and depreciation.
Home values are influenced by factors including local job markets, interest rates, housing supply and demand, neighborhood developments, and broader economic conditions. During real estate booms, property values may increase substantially, inflating net worth. Conversely, during downturns, property values may decline, sometimes to levels below the mortgage balance owed, resulting in negative equity or being "underwater" on a mortgage.
Depreciation
Depreciation is the reduction in value of an asset over time.
This is particularly relevant for new vehicles, which typically lose 20-30% of their value in the first year and continue to depreciate annually. Electronics, furniture, and other personal property also depreciate, though often less dramatically than vehicles.
When calculating net worth, it's important to use current market values rather than original purchase prices to account for depreciation. Some assets, like collectibles or real estate, may appreciate rather than depreciate, but this should not be assumed without evidence.
Seeking to "Get Out of the Red"
Having negative net worth—where liabilities exceed assets—is not uncommon, particularly for younger individuals or those who have recently completed their education.
Rather than focusing solely on whether your net worth is positive or negative, it's more important to track whether it's improving over time. If your accumulation of assets or income is consistently outpacing your debts or expenses, you should be steadily increasing your net worth and moving toward positive territory.
Strategies for improving net worth include paying down high-interest debt, increasing income, reducing expenses, and building both emergency savings and long-term investments.
Take Action Today
Take time to calculate your net worth today as a first step towards monitoring your financial health.
References
AARP. (n.d.). Net worth calculator. Retrieved from https://www.aarp.org/money/retirement/net-worth-calculator/
Bankrate. (2025). Bankrate's 2025 credit card debt report. Retrieved from https://www.bankrate.com/credit-cards/news/credit-card-debt-report/
Bankrate. (n.d.-a). Personal net worth calculator. Retrieved from https://www.bankrate.com/personal-finance/personal-net-worth-calculator/
Caporal, J. (2025). Average American credit card debt in 2025. The Motley Fool. Retrieved from https://www.fool.com/money/research/credit-card-debt-statistics/
Consumer Financial Protection Bureau. (n.d.). Financial well-being. Retrieved from https://www.consumerfinance.gov/consumer-tools/financial-well-being/
Empower. (2025). The average net worth by age in America. Retrieved from https://www.empower.com/the-currency/life/average-net-worth-by-age
FICO. (n.d.). FICO scores bridge. Retrieved from https://www.myfico.com/credit-education/fico-scores-bridge
Hanson, M. (2025). Student loan debt statistics [2025]: Average + total debt. Education Data Initiative. Retrieved from https://educationdata.org/student-loan-debt-statistics
Illinois Department of Revenue. (n.d.). What is real property? Retrieved from https://tax.illinois.gov/questionsandanswers/answer.333.html
Kiplinger. (n.d.). Net worth calculator. Retrieved from https://www.kiplinger.com/investing/wealth-management/603443/net-worth-calculator
Mountain, T. P., & Jones, W. P. (2024). Your financial health: Interpreting statements & using ratios (Publication AAEC-184). Virginia Cooperative Extension. Retrieved from https://www.pubs.ext.vt.edu/AAEC/AAEC-184/AAEC-184.html
NerdWallet. (n.d.). Net worth calculator. Retrieved from https://www.nerdwallet.com/investing/calculators/net-worth-calculator
Pollack, C. E., Chideya, S., Cubbin, C., Williams, B., Dekker, M., & Braveman, P. (2011). Assessing alternative measures of wealth in health research. American Journal of Public Health, 101(5), 939-947. https://doi.org/10.2105/AJPH.2009.190043
van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy, retirement planning, and household wealth (NBER Working Paper No. 17339). National Bureau of Economic Research. Retrieved from https://www.nber.org/system/files/working_papers/w17339/w17339.pdf
VantageScore Solutions. (n.d.). VantageScore. Retrieved from https://vantagescore.com/
Note: This article was written with assistance from Claude (Anthropic, 2026), an AI assistant developed by Anthropic.
Anthropic. (2026). Claude [Large language model]. https://claude.ai
