Calculating your net worth is an essential part of your financial health, and it is the first step towards taking control of your financial future. In essence, your net worth is the difference between what you own and what you owe. It provides an overall picture of your financial standing by indicating how much money you would have left if you sold all your assets and paid off all your debts. In this blog post, we will define net worth, discuss its importance, and explain how to calculate it and increase it.
Definition of Net Worth
Net worth is the total value of your assets minus your liabilities. Assets are anything of value that you own, such as your home, car, investments, and savings account. Liabilities are any debts or financial obligations that you owe, such as mortgage payments, credit card debt, and student loans. Therefore, the formula is simple:
Net Worth = Total Assets – Total Liabilities
How to Calculate Net Worth
As mentioned above, the formula is quite straightforward. You just need to gather all the information about your assets and liabilities. Your assets may include your home, car, savings account, investments, and any other valuable possessions you own. Your liabilities may include your mortgage, car loan, student loans, credit card debt, and any other financial obligations you owe. Once you have all this information, you can use the formula to calculate your net worth. You can also use this calculator to help you!

Negative Net Worth
The formula can actually return a negative number. This would happen when liabilities are greater than assets. When faced with a negative net worth, you should prioritise paying off debt, especially if it is consumer debt (debt due to spending). This is because debt snowballs due to interest and this number will only get worse!
Importance of Calculating and Tracking Net Worth
Calculating your net worth is crucial because it helps you understand your overall financial health. By looking at the numbers, you can see if you are on track to meet your financial goals or spiraling into debt. You can also identify areas where you need to make changes, such as reducing debt or increasing savings. Additionally, calculating your net worth can help you track your progress over time and make informed decisions about your finances such as:
- Should you consolidate your debts?
- Should you sell an asset to pay off an expensive debt?
- Should you take on debt to buy a productive asset?
These decisions will affect your wealth, and only tracking your net worth would allow you to see what is the best financial decision.
Tips for Increasing Your Net Worth
If you want to increase your worth, there are several things you can do:
- Reduce your debt. You can do this by paying off credit card debt or making extra payments on your mortgage.
- Save: You have to save some of your salary. No matter how little you make, you must save at least 5% of your income.
- Invest: Invest your savings in assets that appreciate over time, such as stocks, mutual funds, or real estate.
- Increase earning power: You can actually make more money by negotiating a raise, switching employers, starting a side business, or pursuing additional education or training.
Conclusion
In conclusion, calculating your net worth is an essential step toward achieving financial health. It gives you a clear understanding of your overall financial standing and allows you to make informed decisions about your finances. By following the tips for increasing your worth, you can take control of your financial future and achieve your financial goals. Remember to calculate your net worth regularly to track your progress and make adjustments as needed. Also, sign up for our weekly newsletter below for the latest news, tips, and tricks.
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