Net worth: how to calculate it in ten minutes, and why it matters more than income
Everything owned minus everything owed. It is the one number that captures whether a year of earning, spending and saving left a household better off, and most people have never written it down.
Income is a flow: what came in this year. Net worth is a stock: what is there. Two households on the same income can have net worths a decade apart, and the difference is entirely in what happened to the flow. The calculation is a subtraction and takes ten minutes.
Assets minus liabilities
| Assets | Liabilities | ||
|---|---|---|---|
| Chequeing and savings | $12,000 | Student loans | $22,000 |
| 401(k) and IRA | $38,000 | Car loan | $9,000 |
| Car (resale value) | $15,000 | Credit card balance | $0 |
| Total assets | $65,000 | Total liabilities | $31,000 |
Not $65,000, which is what it owns, and not $12,000, which is what it has in cash. The number that describes its position is $34,000, and a year from now the question is whether that number went up. Illustrative figures.
What goes in
- Cash and accounts at their balance today.
- Retirement and investment accounts at today's value, before tax. Some people discount a traditional 401(k) by their expected tax rate; either way, do it consistently.
- A home at a realistic sale price, with the mortgage on the other side. This is the line that dominates most net worth statements and the one most often overstated.
- A car at what it would sell for, not what was paid.
- Every debt: mortgage, student loans, car loan, card balances, money owed to family.
What stays out
Furniture, electronics, clothes — anything that would sell for a fraction of its cost and will never be sold. A pension or Social Security entitlement, which is real but is a future income stream rather than a balance, and is better tracked separately. The number is meant to be honest, and honest means conservative.
Why it beats income as a measure
A raise shows up in income. A car bought with the raise shows up in net worth — as an asset that falls every year and a loan that does not. Income tells a household what it could have kept. Net worth tells it what it did keep. The savings rate is the link between the two.
Tracked quarterly, the number does three things. It shows whether debt repayment is outrunning depreciation. It shows the year in which investment returns start to exceed contributions — the point where compounding takes over the work. And it removes the question "are we doing okay?" from the realm of feeling, where it is usually answered wrong in both directions.
Sources
- Survey of Consumer FinancesBoard of Governors of the Federal Reserve System · checked Sep 24, 2026