How to calculate net worth (and what the number tells you)

What counts as an asset

Assets are anything you own that has monetary value: bank and savings balances, investment accounts, retirement accounts, the market value of a home or car, and the cash value of any policies. Use realistic current values — what an asset would actually fetch if sold today, not what you paid for it.

Be careful with cars. They are assets, but they depreciate fast, and counting a car at a sentimental value flatters the picture in a way that does not survive contact with a buyer.

What counts as a liability

Liabilities are everything you owe: mortgage balance, car loans, student loans, personal loans, credit-card balances and any other debt. Use the outstanding balance, not the monthly payment.

A common mistake is to count the full value of a house as an asset while forgetting that most of it is financed by a mortgage. The house's contribution to net worth is its value minus its mortgage, which is your equity.

• Assets — cash, investments, retirement accounts, property, business interests
• Liabilities — mortgage, loans, credit cards, any outstanding debt
• Net worth — total assets minus total liabilities

Why the trend matters more than the level

A single net worth figure is almost meaningless in isolation. Someone early in a career with a large mortgage can have a negative net worth and be in excellent financial shape; someone near retirement with the same number has a serious problem. Context comes from your age, your stage and, above all, the direction of travel.

Track it quarterly. A steady rise over years means your savings rate and your debt repayment are winning. A flat or falling line while income rises is a signal that lifestyle inflation has quietly absorbed your progress.

Milestones worth aiming at

Crossing zero is a genuine milestone for people paying down student debt or a mortgage, because it marks the point where you own more than you owe. After that, common targets are one times your salary saved by 30, three times by 40, and around eight to ten times by 67.

These are guides, not standards. The useful part is that they force a comparison between what you have accumulated and what you earn, which is the relationship that determines financial security more than any single number.