# What Is Net Worth and How Do You Calculate It?

Source: https://pennyandplan.com/what-is-net-worth-and-how-do-you-calculate-it/
Published: 2026-08-25 | Updated: 2026-08-25 | Category: Money Basics
Publisher: Penny & Plan (https://pennyandplan.com)

**Short answer:** Net worth is the total value of everything you own, valued at what it would fetch today, minus every balance you currently owe. Income does not appear anywhere in the calculation, because net worth measures what you have accumulated rather than what you earn. To work it out, list your assets at current market value, list your debts at their outstanding balances, and subtract the second total from the first. A negative result is normal in your twenties and thirties when student loans are still large and assets are still small. The number that matters is not this month's figure but the direction it moves over several years.

## Key takeaways
- Net worth is one subtraction: everything you own at today's value, minus every balance you owe.
- Median US family net worth was $192,900 in 2022, and homeowners held roughly 38 times what renters did.
- A $100,000 retirement account is not $100,000 of spendable net worth, because tax is still owed on it.
- Private pensions are 35 percent of all household wealth in Great Britain and the easiest thing to leave off your list.

Two people earn exactly the same salary. One has $215,000 to their name, the other has minus $4,000. Neither of them is lying, and neither had a windfall. The difference is that one converted years of income into things they own, and the other converted it into things they consumed and things they owe.

That gap is what net worth measures, and it is the reason a payslip tells you almost nothing about someone's financial position.

## The formula, and the three places people get it wrong

Net worth is assets minus liabilities. That is the whole thing. The mistakes are never in the arithmetic, they are in what people put on each side.

**Mistake one: including income.** Your salary, your side hustle, your rental income and your benefits are all flows. Net worth is a snapshot of a stock, taken on a particular day. Nothing you earn goes on the list, only what that earning has turned into.

**Mistake two: valuing assets at what you paid.** The car goes on at what it would sell for this week, not the sticker price from four years ago. The house goes on at a realistic current market value, not the price you paid or the price you hope for. Optimistic valuations are the most common way people quietly inflate their own number.

**Mistake three: double counting the home.** Put the full market value of the property in the asset column and the full outstanding mortgage balance in the liability column. Do not also add "home equity" as a separate asset. The subtraction produces the equity for you.

## A worked example

Here is a complete balance sheet for a fictional 38-year-old with a mortgage, a car loan and a retirement account. The currency is US dollars, but the method is identical everywhere.

| Assets | Value | Liabilities | Balance |
| --- | --- | --- | --- |
| Checking account | $3,200 | Mortgage | $298,000 |
| Emergency savings | $11,000 | Car loan | $12,400 |
| 401(k) | $84,500 | Student loans | $19,600 |
| Roth IRA | $22,000 | Credit card | $2,300 |
| Home, current market value | $410,000 | | |
| Car, current resale value | $17,500 | | |
| **Total assets** | **$548,200** | **Total liabilities** | **$332,300** |

Net worth is $548,200 minus $332,300, which is **$215,900**.

Two things are worth noticing in that table. First, home equity of $112,000 accounts for a little over half the total, which is typical and also a warning: a household like this is far less diversified than the headline number suggests. Second, that $215,900 sits above the $192,900 median family net worth the Federal Reserve recorded in its 2022 Survey of Consumer Finances, almost entirely because of a property bought at the right time rather than anything clever.

## What net worth is not

Three measures get confused with net worth constantly, and each answers a different question.

| Measure | What it tells you | What it misses |
| --- | --- | --- |
| Net worth | What you own outright, today | Whether you can pay next month's bills |
| Savings rate | How fast you are adding to it | Everything you have already built or borrowed |
| Credit score | How reliably you repay | Your assets entirely, since it ignores them |
| Debt-to-income ratio | Whether your borrowing is affordable now | Assets, again, and long-term progress |

They work together rather than competing. Net worth is the long-run scoreboard, your [debt-to-income ratio](/what-is-a-good-debt-to-income-ratio/) is the affordability check a lender actually runs, and your [emergency fund](/how-much-emergency-fund/) is what stops you having to liquidate assets at the worst moment.

## The country differences most guides skip

The subtraction is universal. What sits in the asset column, and how the national statistics are built, is not.

| | United States | United Kingdom | Canada |
| --- | --- | --- | --- |
| Headline figure | Median family net worth $192,900 (2022) | Median household wealth £293,700 (Apr 2020 to Mar 2022) | Median family net worth $519,700 (2023) |
| Who measures it | Federal Reserve, Survey of Consumer Finances | ONS, Wealth and Assets Survey | Statistics Canada, Survey of Financial Security |
| Tax-sheltered accounts to include | 401(k), 403(b), Traditional and Roth IRA, HSA | Workplace and personal pensions, ISAs, Lifetime ISA | RRSP, TFSA, RESP, employer pension |
| Most commonly forgotten | Old 401(k) balances from previous employers | Private pension wealth, 35 percent of all household wealth | The value of a defined benefit employer pension |

Do not compare those three headline numbers directly. The US figure is per family, the British one is per household, they cover different years, and the ONS number includes private pension wealth while many casual comparisons do not. Strip pensions out and median British household wealth falls from £293,700 to £181,700, which changes the story entirely.

The pension point is the practical one. In Great Britain, net property wealth is 40 percent of total household wealth and private pension wealth is another 35 percent, so a net worth calculation that skips old workplace pensions is missing about a third of the picture. If you have changed jobs several times and lost track, GOV.UK runs a free service to find the contact details of a pension scheme.

Canada shows the same effect from the other direction. Statistics Canada found that among families aged 55 to 64 in 2023, those who owned their home and had an employer pension plan had a median net worth of $1.4 million, while those who rented and had no employer pension had $11,900. Almost the entire spread comes from two line items.

## Tax-deferred money is worth less than it looks

This is the adjustment almost nobody makes, and it matters most for people with large retirement balances.

A $100,000 Roth IRA or a $100,000 TFSA is genuinely $100,000, because the tax has already been paid. A $100,000 Traditional 401(k) or RRSP is not, because income tax is still owed on every dollar you eventually withdraw. Two people with identical stated net worth can have meaningfully different spending power depending on how their accounts are wrapped.

You do not need to be precise about this. Simply knowing which of your accounts are pre-tax and which are post-tax is enough to stop you overestimating what a retirement balance can actually fund.

## Track the trend, not the number

A single net worth figure is close to meaningless. The same figure recorded every six months for four years is one of the most informative things you can own.

Keep it simple. One spreadsheet, one row per date, one column per account, and the same valuation rules every time. Use the same property estimate source each round rather than whichever one currently flatters you, and update the car value once a year rather than every quarter.

One refinement is worth adding once you have a few years of data: your net worth can rise while your purchasing power falls. If your total climbs 3 percent in a year and prices climb faster, you have gone backwards in real terms. This is the same distinction between nominal and real that runs through [how inflation affects your money](/what-is-inflation-and-how-does-it-affect-your-money/), and it applies to your balance sheet as much as to your salary.

## Where the number stops being a personal metric

Net worth turns from self-assessment into paperwork in three situations.

**Borrowing.** Mortgage lenders in all three countries look at assets and liabilities alongside income, and a strong asset position can offset an income that looks marginal on its own.

**Estates.** In the United States, federal estate tax only applies above an exclusion amount that is adjusted annually, so check the current figure on the IRS estate tax page rather than relying on a number you read somewhere. In the UK, the standard inheritance tax threshold is £325,000, rising to as much as £500,000 where a home is left to children or grandchildren, with 40 percent charged above the threshold and any unused allowance transferable to a spouse or civil partner. Canada has no estate or inheritance tax at all, but on death most capital property is treated as having been disposed of at fair market value, and registered accounts are generally brought into income unless they roll over to a spouse. Same concept, three completely different mechanisms.

**Divorce and separation.** The asset and liability list is the starting document in every jurisdiction. Households that already maintain one arrive at that conversation with a factual record rather than a reconstruction.

## The bottom line

List what you own at today's honest market value, list what you owe at today's balance, subtract the second from the first. Do not include income, do not count home equity twice, and do not treat a pre-tax retirement balance as if it were cash. Then repeat it in six months. The first figure tells you where you are standing, and only the sequence tells you which way you are walking, which is the part worth knowing.

## Frequently asked questions

**Does your salary count towards your net worth?**

No. Salary is a flow and net worth is a stock, so income never appears in the calculation. Your salary only affects net worth indirectly, through the portion of it you convert into assets or use to reduce debt. Two people on identical salaries can be tens of thousands of dollars apart in net worth, which is exactly why the measure is useful.

**Is it bad to have a negative net worth?**

Not by itself. Anyone who has recently borrowed for education or bought a home with a small deposit is likely to be negative or close to it, because the debt arrives all at once and the asset takes years to grow into it. Statistics Canada found that families where the main earner was under 35 posted the largest percentage gain in real median net worth between 2019 and 2023, which is the normal shape of the curve. What matters is whether the number is trending upward year on year.

**How often should you calculate your net worth?**

Quarterly is plenty, and twice a year is enough for most households. Checking monthly encourages you to react to market noise in your pension or investment accounts, which is the opposite of what the measure is for. Use the same valuation method each time so the comparison is honest.

## Sources
- Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances (US Federal Reserve): https://www.federalreserve.gov/publications/october-2023-changes-in-us-family-finances-from-2019-to-2022.htm
- Household total wealth in Great Britain: April 2020 to March 2022 (UK Office for National Statistics): https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2020tomarch2022
- Survey of Financial Security, 2023 (Statistics Canada): https://www150.statcan.gc.ca/n1/daily-quotidien/241029/dq241029a-eng.htm
- Estate Tax (US Internal Revenue Service): https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
- Inheritance Tax (GOV.UK): https://www.gov.uk/inheritance-tax
- Find pension contact details (GOV.UK): https://www.gov.uk/find-pension-contact-details