Assets minus liabilities equals net worth. Add the current value of what you own, subtract the outstanding amount you owe, and use the result as a snapshot of your financial position. The formula is simple; an accurate result depends on consistent values, complete debts and avoiding double counting.
Net worth is different from income and available cash. A household can have positive net worth while struggling to meet monthly expenses. Track the balance sheet alongside a cash-flow plan rather than using one number to answer every financial question.
In This Guide
The net-worth formula
Net worth = total assets − total liabilities
Assets are the financial and property interests included in your statement. Liabilities are the balances owed on the same review date. If assets exceed liabilities, net worth is positive. If liabilities exceed assets, it is negative.
Business accounting uses the related equation assets minus liabilities equals equity. A company’s accounting equity is not automatically the price its owner could receive by selling it. This guide focuses on a personal balance sheet; see our balance-sheet guide for the business context.
What to include
| Item | How to record it | Common mistake |
|---|---|---|
| Cash and savings | Balance on the review date | Counting the same cash inside and outside an account total |
| Investments and retirement accounts | Current statement value | Adding holdings again after counting the account total |
| Home and other property | Reasonable current market estimate | Using purchase price without reviewing value |
| Vehicle or valuable personal property | Realistic resale estimate | Using replacement cost or sentimental value |
| Mortgage and other loans | Outstanding balance, not original loan amount | Confusing the monthly payment with the debt balance |
| Credit cards and other amounts owed | Unpaid balances on the same date | Omitting smaller debts or amounts already spent |
Schwab’s personal net-worth guidance supports listing asset values, outstanding liabilities and the difference. For less liquid holdings, record the estimate, valuation date and uncertainty so that a change in assumptions does not look like actual financial progress.
A complete worked example
The following household is hypothetical. All figures use the same currency and review date. It is an illustration, not a description of a friend, client or author’s personal finances.
| Assets | Value | Liabilities | Balance owed |
|---|---|---|---|
| Home | $450,000 | Mortgage | $300,000 |
| Retirement account | $120,000 | Student loans | $30,000 |
| Vehicle | $15,000 | Vehicle loan | $5,000 |
| Savings | $25,000 | Other debts in this example | $0 |
| Total assets | $610,000 | Total liabilities | $335,000 |
$610,000 − $335,000 = $275,000 net worth. Home equity is $450,000 − $300,000 = $150,000. The remaining $125,000 of net worth comes from the other assets after the student and vehicle loans.
The household’s $25,000 savings balance is much smaller than its $275,000 net worth. The house cannot pay next month’s expenses without a sale or borrowing, and access to retirement funds may involve restrictions or tax. That is why liquidity needs a separate review.
Avoid double counting home and business equity
Use one of two consistent approaches for property: list the full home value as an asset and its mortgage as a liability, or list net home equity without subtracting that mortgage again. The first is clearer for a full household statement.
Using the example, recording $150,000 home equity and then subtracting the $300,000 mortgage again would understate net worth by $300,000. Conversely, counting both the full $450,000 property value and $150,000 equity would overstate assets.
A similar issue arises with a business interest. If its estimated value already reflects the company’s debts, do not add the company’s gross assets or subtract those debts again in your personal statement. Separately record any actual personal loans or obligations. Guarantees and ownership structures can require professional advice rather than a casual spreadsheet assumption.
Use consistent ownership, currency and valuation rules
- Define the scope: calculate your individual position or a combined household position. Do not switch between them halfway through.
- Record ownership: for joint assets, document the share included. Treat joint debt according to the actual obligation; do not assume the amount legally owed always equals half.
- Choose a currency: convert foreign-currency amounts consistently using a dated exchange rate and keep the original amounts.
- Value uncertain assets cautiously: show a range for a private business or unusual property if no reliable single price exists.
- Label tax assumptions: a statement balance is not always after-tax spending money. Keep estimated taxes and selling costs visible if preparing a liquidation estimate.
A standard net-worth snapshot and a “what could I spend after selling everything?” estimate answer different questions. Document which one you are calculating. Do not compare an after-tax estimate this quarter with a before-tax balance last quarter and interpret the difference as investment performance.
Understand what changes the number
Borrowing: receiving a $10,000 loan adds $10,000 cash and $10,000 debt. Net worth is initially unchanged before fees. Having more cash does not mean the household became $10,000 wealthier.
Repaying principal: using $1,000 of existing cash to repay $1,000 of debt reduces assets and liabilities equally. Net worth is immediately unchanged. The payment can still improve future cash flow and reduce interest costs. Interest and fees are separate costs.
Saving income: adding $500 of unspent income to cash, with no new liability, increases net worth by $500. Changing asset values: a $20,000 fall in the home estimate reduces net worth by $20,000 if every other entry stays the same. These examples help explain the movement instead of treating every increase as an investment gain.
Turn the snapshot into a useful review
Keep a dated record with columns for item, value, evidence, ownership and notes. Compare the next review with the same scope. Separate new savings, borrowing, debt payments and market-value changes. An uncertain asset estimate should not distract from a clear issue such as expensive debt or insufficient cash reserves.
Choose a review interval that fits the decisions you are making, such as quarterly or after a major purchase. Daily property estimates usually add little practical value. Use the emergency-fund guide for liquidity and the wealth plan builder to connect the balance sheet with goals and contributions.
Common questions
Should I include retirement accounts?
Yes, if they are part of the assets you own. Record their current value and separately note access restrictions and potential taxes. Do not label the entire balance as immediately spendable cash.
Does negative net worth mean bankruptcy?
No. It means listed liabilities exceed listed assets. Bankruptcy and insolvency involve jurisdiction-specific legal rules; the arithmetic alone does not establish a legal status.
Do future wages count?
This personal balance-sheet method does not treat hoped-for future wages as a current asset. Track income and earning plans in a separate cash-flow forecast.
Source and review notes
Schwab MoneyWise: personal net worth. Tables, double-counting checks and transaction examples are original hypothetical illustrations.
Substantively reviewed October 9, 2026. Educational information, not individualized accounting, legal or tax advice.
