Net worth

Net worth is a snapshot. Add up what every asset is worth on the day you measure, subtract every balance you owe on that day, and the difference is the figure. A raise, a bonus, or a busy month cannot move it on their own; only the money you keep moves it, which is why net worth, and not income, is the number that says whether you are getting ahead. It can be negative, and for anyone early in a career with student loans it usually is for a while.

In a sentence

• "Our net worth went up $9,000 this year, mostly because the mortgage balance came down."
• "Her net worth is negative for now: the student loans are larger than everything she owns."
• "A raise changes your income. Only the part of it you keep changes your net worth."

How it's calculated

Net worth = assets − liabilities

An asset is anything you own that has a cash value today, counted at what it would sell for now rather than what you paid. A liability is any balance you owe, counted at today's payoff amount.

Three rules keep the figure honest. Use today's values, not purchase prices. Count a debt at its full balance even when the monthly payment is small. Leave income out entirely: what came in this year is either already in the accounts or already spent.

An example

A year later the same household has $1,000 more in the 401(k) from contributions, $2,800 less on the car loan and $1,600 less on the student loan, and its net worth reads $29,400, up $5,400 without a raise. The car is also worth less than it was: mark it down by $1,500 and the true figure is $27,900, which is why the number rarely moves by exactly what was saved.

Why it matters

Income says how fast money arrives; net worth says how much of it stayed. Two households on the same salary can be $100,000 apart after a decade because of the share each one kept. Read on a schedule, the figure also catches what a checking balance hides: an account that looks the same all year while a card balance grew is a falling net worth, and a savings balance that never moved while the mortgage shrank is a rising one. The direction matters more than the level, and your own level matters more than anyone else's.

Net worth versus income

Income is a flow, what comes in over a year. Net worth is a stock, what you have as of today. A high income spent as it arrives leaves net worth flat, and a modest income with a steady surplus builds it, because net worth grows only by the share of income that is kept plus whatever the kept money earns. That share is the one number a raise cannot change on its own. See Net worth versus income for the full case.

Common questions

Is a negative net worth bad? It is common, and it is temporary if the direction is right. A recent graduate with $30,000 of student loans and $4,000 in the bank has a net worth of −$26,000, and every loan payment moves it toward zero. Watch the change from one reading to the next rather than the sign.

Does my home count toward net worth? Yes, at a realistic estimate of what it would sell for today, with the mortgage balance counted in full on the other side. A $320,000 home with a $250,000 mortgage adds $70,000, and the figure moves with both the market and each principal payment. See Does a house count toward net worth?.

Do retirement accounts count even though I can't spend them? Yes, at today's balance. Net worth measures what you have, not what you can reach this week; the money you can reach is your liquid net worth, a narrower figure. See Liquid net worth versus total net worth.

Does paying off debt raise net worth? Yes, by the principal in every payment, the same as a dollar saved: the money leaves checking and the loan balance falls by the same amount, so compared with spending it, that dollar stayed in your net worth. Only the interest portion is gone. See How paying off debt raises your net worth.

How often should I check my net worth? Monthly is often enough to see the direction and rare enough that a market swing does not read as a trend. See How often to check your net worth.

Go deeper

• How to calculate your net worth, with a worked example walks through the full list of what counts on each side.
• What counts as an asset and a liability settles the cases that confuse people, from the car to the 401(k).
• How to read your net worth trend explains what the line says once you have a few readings.

Where it shows up in Zypper

Zypper computes net worth from every account and charts it over time. Connected accounts update every day on both sides of the calculation: checking, savings, investment and retirement accounts on the asset side, and credit cards and loans, including mortgages and auto and student loans, on the liability side. Anything you cannot connect, a home, a vehicle, cash, or a private loan, is added as a manual account with the balance you set, so the number stays complete. See Net worth tracking, Manual accounts, and Supported account types, or get started with Zypper to see your own number.