What is net worth?
Net worth is one subtraction:
Everything you own — everything you owe = your net worth
That is the whole formula. It is not a credit score, it is not your salary, and it is not how much is in your bank account this morning. It is the honest total of your financial position on a given day.
Why this number and not another
Section titled “Why this number and not another”Most people track the wrong thing. They watch their bank balance, which mostly measures how recently they were paid, or they watch one investment, which measures one small corner of their life.
Net worth is more useful for three reasons.
It cannot be gamed by moving money around. Transferring 5,000 from savings into a brokerage account changes both balances but leaves net worth untouched — correctly, because you are no richer than you were an hour ago. Any number that does not move when nothing real happened is telling you the truth.
It counts debt honestly. Someone with a 400,000 apartment and a 380,000 mortgage is not a 400,000-wealthy person. Net worth says 20,000, which is the number that actually matters.
It is the only figure that answers “am I making progress?” Comparing this month’s net worth to last year’s tells you whether the whole machine — income, spending, investing, debt repayment — is moving in the right direction.
Working out yours
Section titled “Working out yours”Take a sheet of paper or a blank spreadsheet and make two columns.
Column one: what you own
Section titled “Column one: what you own”Write down anything that could be turned into money. Rough figures are fine — precision matters far less than completeness at this stage.
- Cash: current accounts, savings accounts, cash at home
- Investments: shares, funds, ETFs, bonds, retirement accounts
- Fixed-term deposits and savings certificates
- Property: your home, land, anything you rent out
- Vehicles, if they are worth a meaningful amount
- Crypto
- Money owed to you that you genuinely expect back
Column two: what you owe
Section titled “Column two: what you owe”- Mortgage or home loan outstanding
- Car loans
- Student loans
- Credit card balances you cannot clear this month
- Personal or family loans
- Any tax you know is coming but have not paid
Subtract
Section titled “Subtract”Add up each column, then subtract the second from the first. That number is your net worth.
If the number is negative
Section titled “If the number is negative”A negative net worth is normal at certain stages of life and is not a verdict on you. A recent graduate with student debt and no assets has a negative net worth almost by definition. So does someone who bought a home recently with a small deposit.
What matters is the direction of travel. A net worth moving from −40,000 to −31,000 over a year is a good year. Watching the trend line beats staring at the absolute figure.
The two mistakes people make
Section titled “The two mistakes people make”Counting a home as pure profit. If you own a house worth 500,000 with a 300,000 mortgage, only 200,000 belongs in your net worth. People who skip the liability column tend to feel wealthy and behave accordingly.
Ignoring small accounts. The old pension from a job you left, the brokerage account with three shares in it, the savings account in the country you used to live in. These are genuinely yours and they are exactly the accounts that go missing — which is the subject of a later lesson in this course.
Practice step
Section titled “Practice step”Calculate your net worth once, roughly, right now. Do not open every statement or chase exact figures. Estimate, write the total down with today’s date, and put it somewhere you will find it again.
The point is not accuracy. The point is that you now have a starting line to measure against — and a first draft you can correct later, which is far more useful than a perfect version you never begin.
Next: Assets vs liabilities — how to tell which column something belongs in, including the cases that trip people up.
Want the calculation kept up to date automatically, across currencies? Agni Folio does it for free — but finish the lesson first, the maths matters more than the tool.