When it comes to your financial health, few numbers are as important as your net worth. But what exactly is it, and why should you care?

What Is Net Worth?

Net worth is the value of everything you own minus everything you owe. Think of it as your personal balance sheet.

Here’s the formula:

Net Worth = Assets – Liabilities

• Assets are things you own that have value—like your home, car, savings, investments, and even valuable items like jewelry or art.

• Liabilities are your debts—such as credit card balances, mortgages, student loans, and car loans.

Example:

Let’s say you own:

• A home worth $250,000

• A car worth $20,000

• Savings and retirement accounts totaling $50,000

That gives you $320,000 in assets.

Now, let’s say you owe:

• $180,000 on your mortgage

• $10,000 on a car loan

• $5,000 in credit card debt

That’s $195,000 in liabilities.

So, your net worth is:

$320,000 – $195,000 = $125,000

Why Net Worth Matters

Your net worth gives you a snapshot of your financial health. It’s more insightful than just looking at your income because it accounts for what you keep, not just what you earn.

Tracking your net worth over time can help you:

• Stay on top of your finances

• Set realistic goals

• Make smarter decisions about spending, saving, and investing

• Prepare for big life changes like retirement or buying a home

How to Improve Your Net Worth

Even if your net worth is negative now (which is common when people are paying off student loans or mortgages), you can build it over time by:

• Reducing debt

• Increasing savings and investments

• Avoiding unnecessary expenses

• Buying appreciating assets, like real estate or stock investments

Bottom Line

Your net worth isn’t just a number—it’s a tool. Whether you’re just starting your financial journey or planning for the future, understanding and tracking your net worth can help you make better decisions and build lasting wealth.