How do you calculate your net worth?

Net worth is assets minus liabilities. That is the entire formula, and it is genuinely that simple.

What makes it worth writing down is that the number is only as good as the judgment calls inside it, and there are four that matter.

What to include

Assets — cash and savings, investment accounts, retirement accounts, the market value of your home, vehicles, and anything else with a resale market.

Liabilities — mortgage balance, car loans, student loans, credit card balances, personal loans, anything you owe.

Subtract. That is your net worth, and a negative number early in life is normal rather than alarming.

The four judgment calls

1. Use current values, not what you paid. The home goes in at what it would sell for, not the purchase price. The car goes in at what it would fetch today, which is considerably less than you remember.

2. Retirement accounts are pre-tax. A traditional 401(k) showing $400,000 is not $400,000 of spendable money — it carries a future tax bill. Most people count the full balance, which is a reasonable convention as long as you know you are doing it. A Roth balance genuinely is what it says.

3. The car is an asset and a depreciating one. Including it is correct. Expecting it to hold its value is not, and it is the line item most likely to make your net worth quietly fall between one year and the next.

4. Your home is not liquid. It is probably the largest number on the list and the hardest to spend. Which is why the more useful figure is often liquid net worth — net worth excluding the house and anything else you cannot sell quickly. That is the number that tells you what you could actually do.

The net worth calculator splits liquid from total, so both are visible rather than blended into one figure that hides the difference.

What the number is for

Not comparison. Net worth varies enormously with age, region, career and inheritance, and a national median tells you nothing actionable about your own situation.

It is for direction. One number a year, same method each time, and the useful question is whether it is going up and by how much. A single snapshot is nearly meaningless; five annual snapshots are a picture of whether your financial life is working.

It is also the only figure that catches things a budget misses. You can have excellent monthly cash flow and a net worth going sideways, because the debt is growing as fast as the savings. The monthly view cannot see that. This one can.

What to do with this

1. Do it once a year, on the same date, using the same method. Consistency matters more than precision.
2. Track both totals — with the house and without it.
3. Do not chase the number. It is a thermometer, not a goal. The things that move it are the saving rate and the debt, and those are what to work on.
4. Expect it to fall sometimes. Markets drop and cars depreciate. A down year is data, not failure.

If you are deciding what to do with the picture it gives you, the two questions that usually follow are whether to pay down debt or invest and whether the emergency fund is the right size. Net worth tells you where you are. Those decide what happens next.

Sources: net worth is definitional — assets minus liabilities — so there is no external rule to cite for the formula. The point about traditional balances carrying a future tax bill follows from the treatment of distributions described in IRS Topic No. 558.