Net Worth
Net Worth Explained
Net worth is the single number that best captures your overall financial health — everything you own minus everything you owe. Here's what to include, how to track it, and how to use it.
The Simple Formula
If your assets total $350,000 and your debts total $120,000, your net worth is $230,000. If your debts exceed your assets, your net worth is negative — and that's okay, especially early in a career when student loans or a mortgage dominate.
What Counts as an Asset?
Assets are anything you own that has monetary value and could be converted to cash:
Cash & Bank Accounts
Checking, savings, money market accounts, and cash on hand.
Investments
Brokerage accounts, stocks, ETFs, mutual funds, crypto, and bonds.
Real Estate
Current market value of your home, rental properties, or land.
Retirement Accounts
401(k), IRA, Roth IRA, pension cash value, and similar accounts.
Vehicles
Current resale value of cars, motorcycles, boats (use Kelley Blue Book for cars).
Other Assets
Business ownership stakes, collectibles, jewelry, or other valuable property.
Tip: Be conservative with valuations. A car depreciates the moment it drives off the lot; a home's "value" is what a buyer would actually pay today, not your purchase price.
What Counts as a Liability?
Liabilities are everything you owe — any debt with a balance:
- Mortgage (remaining principal, not the full original loan)
- Car loans
- Student loans
- Credit card balances (the outstanding balance, not the limit)
- Personal loans
- Medical debt
- HELOC (Home Equity Line of Credit) drawn balance
Do not include monthly bills that haven't come due yet (electricity, subscriptions) — those aren't debt, they're upcoming expenses.
Liquid vs. Illiquid Assets
Not all assets are equally useful in a pinch. Liquidity describes how quickly an asset can be converted to cash without losing significant value:
- Highly liquid: Checking, savings, money market — available same day
- Liquid: Brokerage accounts — typically 2–3 days to settle
- Less liquid: Retirement accounts — accessible but may have penalties before 59½
- Illiquid: Real estate, cars, collectibles — can take weeks or months to sell
A high net worth concentrated in illiquid assets (like a home) can still leave you cash-poor. That's why a healthy emergency fund in liquid accounts matters even if your overall net worth is strong.
How to Track Net Worth Over Time
The point of tracking net worth isn't any single snapshot — it's the trend. Update your balances in Buckets periodically (monthly or quarterly) and watch the trajectory.
- Going up? You're building wealth — income exceeds spending + debt payoff is happening.
- Flat? You may be treading water — income is covering expenses but not building equity.
- Going down? Spending or debt is outpacing savings — time to review the budget.
Normal dips happen: a new car loan, an unexpected medical expense, a market correction. What matters is the long-term trend.
The Role of Your Home
Your primary residence is an asset, but it's a special one. Unlike a brokerage account, you can't sell 10% of your home when you need cash. And unlike a rental property, it doesn't produce income.
Financial planners often look at net worth excluding your primary home to get a sense of your investable wealth. Buckets includes it by default because it's real equity — just be mindful that it's the illiquid portion.