Most people track their income. Almost nobody tracks their net worth. This is a critical mistake — because net worth, not income, is the true measure of financial health.
You can earn $200,000 a year and have a negative net worth. You can earn $60,000 a year and be a millionaire. Income tells you how much money flows in. Net worth tells you how much you actually keep.
Here is everything you need to know.
What Is Net Worth?
Net worth is the difference between everything you own and everything you owe.
Net Worth = Total Assets − Total Liabilities
That is the entire formula.
Assets are things you own that have value:
- Cash and savings accounts
- Investment accounts (401k, IRA, brokerage)
- Real estate (current market value)
- Vehicles (current market value)
- Business equity
- Valuable personal property
Liabilities are debts you owe:
- Mortgage balance
- Car loans
- Student loans
- Credit card balances
- Personal loans
- Any other debt
How to Calculate Your Net Worth Right Now
Step 1: List all your assets with current values
| Asset | Value |
|---|---|
| Checking account | $3,200 |
| Savings account | $8,500 |
| 401k | $42,000 |
| Roth IRA | $15,000 |
| Car (market value) | $18,000 |
| Total Assets | $86,700 |
Step 2: List all your liabilities with current balances
What Is a Good Net Worth?
Net worth varies enormously by age, income, and location. Here are median net worth figures by age in the US according to Federal Reserve data:
- Under 35: $39,000
- 35-44: $135,000
- 45-54: $247,000
- 55-64: $364,000
- 65-74: $410,000
Note: these are median figures — half of people in each group have more and half have less. Average figures are much higher due to extremely wealthy individuals skewing the data.
A better benchmark than your age group: are you growing your net worth consistently every year? That trajectory matters more than the current number.
Why Net Worth Matters More Than Income
High income does not equal wealth.
Consider two people:
The Book That Reframes What Net Worth Means
The Millionaire Next Door by Thomas Stanley — Stanley's landmark research found that most millionaires do not look rich — they drive used cars and live in modest homes. Net worth and income are completely different things, and this book proves it.
The Psychology of Money by Morgan Housel — Housel explains why net worth is the right metric to track and why most people optimize for the wrong things.
Prefer audiobooks? All of these are available on Audible — try it free for 30 days and get your first audiobook included.
| Liability | Balance |
|---|---|
| Car loan | $12,000 |
| Student loans | $28,000 |
| Credit card | $2,400 |
| Total Liabilities | $42,400 |
Step 3: Subtract
$86,700 − $42,400 = $44,300 net worth
Person A earns $150,000/year, drives a $60,000 car, has a $500,000 mortgage, maxes credit cards, and saves nothing. Net worth: negative.
Person B earns $70,000/year, drives a paid-off $12,000 car, rents modestly, invests $1,000/month. Net worth after 10 years: $200,000+.
Person B is dramatically wealthier despite earning less than half as much. Net worth tracks actual wealth accumulation. Income tracks cash flow — which means nothing if it all flows back out.
The Fastest Ways to Grow Your Net Worth
Increase Assets
Invest consistently. Every dollar invested in index funds grows through compound returns. A $500/month investment at 7% annual return adds $86,000 in net worth over 10 years.
Build home equity. Each mortgage payment reduces your liability and builds an asset. Overpaying your mortgage accelerates this.
Build business equity. A side business or freelance practice has real value beyond the income it generates.
Reduce Liabilities
Pay off high-interest debt aggressively. Every dollar of credit card debt eliminated at 27% interest is equivalent to a 27% guaranteed investment return.
Avoid new consumer debt. Car loans, personal loans, and credit card balances all reduce net worth immediately.
Refinance existing debt. Lower interest rates mean less of each payment goes to interest and more reduces your principal balance.
The Combination That Builds Wealth Fastest
The highest-impact action is simultaneously reducing high-interest debt and investing. Even small amounts invested while aggressively paying down debt builds net worth from both directions.
How to Track Your Net Worth Automatically
Calculating net worth manually once a year is better than never. Tracking it monthly with automatic tools is transformational — you see the impact of every financial decision in real time.
Best tools for automatic net worth tracking:
Empower (formerly Personal Capital) — Free. Connects all accounts, updates daily, shows net worth trend over time. The best free option available.
Monarch Money — $15/month. The most complete financial dashboard including net worth, budgeting, and investment tracking in one app.
A simple spreadsheet — If you prefer privacy and manual control, a monthly spreadsheet updated in 15 minutes works perfectly well.
The One Net Worth Goal Worth Setting
Forget trying to reach a specific number by a specific age. Instead, focus on one metric: is your net worth higher this month than last month?
Consistent monthly growth — even $200 or $500 — compounds into life-changing wealth over decades. The direction and consistency matter far more than the speed.
Track your net worth monthly. Celebrate every increase. Investigate every decrease. Use the number as a feedback mechanism for your financial decisions.
The Bottom Line
Calculate your net worth today. Take 15 minutes, list your assets, list your liabilities, subtract.
Whatever the number is — positive, negative, or zero — it is your starting point. What matters now is the trajectory.
Connect your accounts to Empower for automatic monthly tracking. Watch the number grow as you invest, pay down debt, and make better financial decisions.
Your net worth tells you the truth about your financial life. Most people avoid knowing it. The ones who track it consistently are the ones who build real wealth.
Originally published at ZarWealth.
