A doctor earning $400K/year with $500K in debt has a lower net worth than a teacher earning $55K with $200K saved. Income is vanity, net worth is sanity. Understanding and tracking your net worth is the single most important habit for building wealth.
The Simple Formula
Everything you own minus everything you owe
📈 Assets (What You Own)
- +Cash & checking/savings accounts
- +Investment accounts (brokerage, 401k, IRA)
- +Real estate equity (home value - mortgage)
- +Vehicle value (current market value)
- +Business equity
- +Cryptocurrency holdings
- +HSA balance
📉 Liabilities (What You Owe)
- −Mortgage balance
- −Student loans
- −Auto loans
- −Credit card balances
- −Personal loans
- −Medical debt
- −Any other debts
In This Guide
Why Net Worth Matters More Than Income
The Tale of Two Earners
- $15,000 savings
- $50,000 retirement accounts
- $400,000 home (owes $380,000)
- $45,000 car (owes $40,000)
- $25,000 student loans
- $40,000 savings
- $150,000 retirement accounts
- $250,000 home (owes $100,000)
- $12,000 car (paid off)
- $0 debt
Person B earns 3x less but has 17x higher net worth. Who's actually wealthier?
Net worth is your financial scoreboard
It shows progress over time, not just cash flow. One number to track.
Net worth measures true financial security
High income can vanish (job loss, illness). Assets remain.
Net worth determines FIRE readiness
Financial independence is based on net worth (25x expenses), not income.
Net worth reveals the full picture
Someone with high income and high debt may be one emergency away from trouble.
What to Include (and What to Skip)
✓ Always Include
- ✓Cash accounts: Checking, savings, money market
- ✓Investment accounts: Brokerage, 401k, IRA, HSA
- ✓Real estate: Current market value minus mortgage
- ✓All debts: Mortgage, student loans, credit cards, auto
⚠️ Use Caution With
- ?Cars: Depreciating assets; use conservative values
- ?Jewelry/collectibles: Hard to value, illiquid
- ?Business value: Complex to estimate accurately
- ?Pensions: Include only vested portion
❌ Skip These Entirely
- ✗Household furniture and appliances
- ✗Clothing and personal items
- ✗Electronics (phones, laptops)
- ✗Future Social Security benefits
- ✗Future inheritance (don't count your chickens)
- ✗Human capital (earning potential)
Keep it simple: if it doesn't have significant financial value or you wouldn't sell it, skip it.
Step-by-Step Calculation
List All Bank Accounts
Log into every bank account and note the current balance. Don't forget savings accounts you rarely check.
Add Investment Accounts
Include 401(k), IRA, HSA, brokerage accounts. Use current values, not contributions.
Estimate Real Estate Equity
Look up your home's value on Zillow/Redfin. Subtract mortgage balance = equity.
List All Debts
Credit cards, student loans, auto loans, mortgage, personal loans, medical debt. Every dollar you owe.
Do the Math
Add all assets. Subtract all liabilities. That's your net worth.
💡 Pro Tip: Negative Net Worth Is Normal
If your liabilities exceed your assets, your net worth is negative. This is common for recent graduates with student loans or new homeowners. The goal is to track the trajectory—is it improving month over month?
Net Worth Benchmarks by Age
The common rule of thumb: By age 30, have 1x your salary saved. Add 1x for each 5 years after.
| Age | Target (× Salary) | Example ($75K salary) |
|---|---|---|
| 25 | 0.5x | $37,500 |
| 30 | 1x | $75,000 |
| 35 | 2x | $150,000 |
| 40 | 3x | $225,000 |
| 45 | 4x | $300,000 |
| 50 | 5x | $375,000 |
| 55 | 6x | $450,000 |
| 60 | 7x | $525,000 |
| 65 (Retirement) | 8-10x | $600K-$750K |
⚠️ Benchmarks Are Just Guidelines
These numbers vary wildly based on cost of living, career trajectory, lifestyle choices, and goals. Someone pursuing FIRE needs 25x expenses. Someone with a pension needs less. Focus on your own trajectory, not comparisons.
How Often to Track
Tracking Tools
- 📱Apps: Mint, Personal Capital, Copilot, YNAB—auto-sync accounts
- 📊Spreadsheet: Google Sheets or Excel—full control, no data sharing
- 📝Paper: Simple notebook—works for minimalists
The best method is the one you'll actually use. Start simple.
Strategies to Grow Your Net Worth
Increase Income
Negotiate raises, switch jobs, start a side hustle. More income = more to invest.
Decrease Expenses
The gap between income and spending is your wealth-building fuel.
Eliminate High-Interest Debt
Credit card debt at 20%+ APR is an emergency. Pay it off before investing.
Invest Consistently
Max out tax-advantaged accounts (401k, IRA, HSA). Automate investments.
Build Home Equity
Pay down mortgage faster or let appreciation work over time.
Let Time Work
Compound growth does the heavy lifting. Start early, be patient.
💡 The Wealth Equation
(Income − Expenses) × Investment Returns × Time = Wealth
You control three variables. Time works for you if you start now.
📌 Key Takeaways
- ✓Net worth = Assets minus Liabilities. It's your financial scoreboard.
- ✓Include liquid assets, investments, real estate equity, and all debts.
- ✓Track monthly or quarterly. The trend matters more than the number.
- ✓Negative net worth is common when young. Focus on the trajectory.
- ✓Grow net worth by earning more, spending less, and investing the difference.