Net Worth: What It Is and How to Calculate It

Key takeaways

• Net worth equals the value of assets minus liabilities.
• Positive net worth means assets exceed debts; negative net worth means the opposite.
• Individuals, businesses, sectors and countries can all have a net worth.
• In business, net worth is often called book value or shareholders’ equity.
• You can grow net worth by increasing assets and/or reducing liabilities.

Definition

Net worth is the monetary value remaining after subtracting all liabilities from all assets. It provides a snapshot of financial health and helps guide decisions about saving, borrowing and investing.

How to calculate net worth

Net worth = Total assets − Total liabilities

Steps:
1. List assets and assign current market values (cash, savings, investments, retirement accounts, real estate equity, vehicles, other possessions).
2. List liabilities (mortgages, credit card balances, student loans, auto loans, unpaid bills, taxes).
3. Subtract total liabilities from total assets.

Example:
Assets: primary residence $250,000 + investments $100,000 + other assets $25,000 = $375,000
Liabilities: mortgage $100,000 + car loan $10,000 = $110,000
Net worth = $375,000 − $110,000 = $265,000

A later change in values and balances can raise net worth even if some assets decline, as long as gains and debt reduction outweigh losses.

Positive vs. negative net worth

• Positive net worth: assets exceed liabilities. Generally a sign of financial stability.
• Negative net worth: liabilities exceed assets. Common early in life (student loans, mortgages) or after unexpected events. Recovering from negative net worth typically requires focused debt reduction, budgeting and building savings.

Debt-reduction strategies include:
* Debt snowball (pay smallest debts first for momentum)
* Debt avalanche (pay highest-interest debts first to save on interest)
* Negotiation or, in severe cases, bankruptcy (note: some debts—child support, alimony, certain taxes, and often student loans—may not be dischargeable; bankruptcies can remain on credit reports for many years)

Net worth in business

For companies, net worth appears as book value or shareholders’ equity on the balance sheet:
Shareholders’ equity = Total assets − Total liabilities

Balance-sheet values reflect historical or book costs, not always current market value. Lenders and investors review a company’s net worth to assess solvency and growth potential. Consistent profits that are retained (not fully paid out as dividends) tend to increase book value over time.

Net worth in personal finance

An individual’s net worth tracks personal wealth by combining liquid accounts, investment and retirement accounts, home equity and other owned assets, then subtracting all debts. People with substantial investable assets are often referred to as high-net-worth individuals (HNWIs). Under securities rules, certain investment opportunities are limited to investors who meet specific asset thresholds.

What is a “good” net worth?

There isn’t a one-size-fits-all number. A satisfactory net worth depends on age, income, family situation and financial goals. Tracking net worth over time is more important than comparing to a single benchmark: steady growth and reduced debt indicate progress.

Guidelines and targets vary; for example, many advisors recommend building multiple years’ worth of salary in retirement accounts by mid-career as a rough preparedness goal.

Practical tips to improve net worth

• Increase savings and investments (automate contributions).
• Pay down high-interest debt first.
• Prioritize emergency savings to avoid new debt.
• Avoid unnecessary asset depreciation; maintain major assets (home, car).
• Reinvest business or investment gains rather than distributing everything as expenses or dividends.
• Review net worth periodically to measure progress and adjust plans.

Common questions

Q: How often should I calculate net worth?
A: Quarterly or annually is typical; monthly can help if you’re actively managing debt or saving aggressively.

Q: What counts as an asset?
A: Anything with measurable monetary value you own—cash, investments, retirement accounts, real estate equity, vehicles, valuable personal property.

Q: What counts as a liability?
A: Debts and obligations—mortgages, loans, credit card balances, unpaid taxes and bills.

Q: Who is considered a high-net-worth individual (HNWI)?
A: Definitions vary. Common industry definitions start at $1 million in liquid financial assets for HNWI classifications.

Bottom line

Net worth is a simple, powerful measure of financial position: assets minus liabilities. Regularly calculating and monitoring net worth helps identify whether your financial decisions are building long-term wealth and where adjustments—saving more or reducing debt—are needed.