Net worth is a measure of your financial health—it’s the total value of everything you own (your assets) minus everything you owe (your liabilities). Think of it as a scorecard for your financial progress. Here’s how it works and why it’s important:

How to Calculate Net Worth:
- Assets: Add up the value of what you own—cash, savings, investments, property, car, etc.
- Liabilities: Add up what you owe—credit card debt, student loans, mortgage, car loans, etc.
- Formula: Net Worth = Assets - Liabilities.
Examples:
- If you have $5,000 in savings and a $2,000 car but owe $3,000 on a credit card, your net worth is $5,000 + $2,000 - $3,000 = $4,000.
- If you have $500,000 in investments and a $300,000 house but owe $200,000 on a mortgage, your net worth is $500,000 + $300,000 - $200,000 = $600,000.
Why It Matters:
- Tracks Progress: Your net worth shows if you’re moving forward financially—growing assets or shrinking debts.
- Guides Decisions: It helps you decide where to focus, like paying off debt or increasing savings.
- Builds Awareness: Knowing your net worth makes you more mindful of your financial habits.
- Sets Goals: It gives you a baseline to set goals, like reaching a $10,000 net worth in 5 years.
Positive vs. Negative Net Worth: A positive net worth means your assets exceed your liabilities—great! A negative net worth means you owe more than you own, which is common when starting out but a sign to focus on debt reduction.

Net worth isn’t about comparing yourself to others—it’s about understanding your own financial journey and taking steps to improve over time.

Real-Life Net Worth Tracking: From $100 to $1M

Let’s see how two people—one just starting out, another with a larger budget—calculated and used their net worth to improve their finances.

Tina’s Story ($100 to Start): Tina, a 24-year-old student earning $1,000 a month, calculated her net worth to get a handle on her finances. She had $500 in savings and a $1,000 laptop but owed $2,000 in student loans—her net worth was $500 + $1,000 - $2,000 = -$500. Seeing her negative net worth motivated her to cut $50 a month in spending (like coffee runs) and apply it to her loans. After a year, she reduced her debt to $1,400, bringing her net worth to $100—a small but meaningful improvement.

Mark’s Story ($1M Net Worth): Mark, a 51-year-old consultant with a $1M net worth and $150,000 annual income, calculated his net worth to plan for retirement. He had $600,000 in investments, a $400,000 house, and $50,000 in savings but owed $150,000 on his mortgage—his net worth was $600,000 + $400,000 + $50,000 - $150,000 = $900,000. He set a goal to reach $1M by paying off $50,000 of his mortgage and investing an extra $1,000 a month. After 2 years, his net worth hit $1.05M, giving him confidence for retirement.

Tina and Mark show that tracking your net worth works at any level—it’s a tool to measure progress and guide your financial decisions!

Your Turn: Calculate Your Net Worth in 5 Steps

Ready to calculate your net worth and use it to improve your finances? Here’s a simple 5-step plan to get started—I’ll keep it easy:

List Your Assets: Write down everything you own—savings, investments, property, car, etc.—and estimate their value.
List Your Liabilities: Write down everything you owe—credit card debt, loans, mortgage, etc.
Calculate Your Net Worth: Subtract your liabilities from your assets (Assets - Liabilities = Net Worth).
Set a Goal: Decide how to improve your net worth—like paying off $500 of debt or saving $1,000 in a year.
Track Quarterly: Recalculate your net worth every 3 months to see your progress and adjust your plan.

Let’s Test What You’ve Learned!

Here are a couple of quick questions to make sure you’re ready to track your net worth:

What is net worth?
A) Your monthly income
B) Assets minus liabilities
C) The amount you spend each month
What’s a good first step to calculating your net worth?
A) List your assets and their values
B) Ignore your debts
C) Avoid setting financial goals

Answers: 1) B, 2) A. Drop your answers in the comments—I’d love to hear how you did! And if you’ve got questions about net worth, let’s chat there too.

Ready to understand personal finance? I’ve put together a free Personal Finance Checklist to guide you through the process—it’s the same one I used to start tracking my own finances. Grab it below, and let’s see where you stand!

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