What is net worth and why does it matter?

Net worth is total assets minus total liabilities—it's your true financial position. Track net worth annually to measure financial progress. Income shows cash flow, but net worth shows wealth accumulation. A high earner with high debt might have lower net worth than a moderate earner who saves consistently. Focus on growing net worth, not just income.

What counts as an asset and liability?

Assets include: cash, savings, investments, retirement accounts, real estate equity, vehicle value, and valuable possessions. Liabilities include: mortgage, student loans, car loans, credit card balances, personal loans, and other debts. Use current market values for assets and remaining balance for liabilities. Don't include future income or potential inheritances.

What's a good net worth for my age?

A rough formula: net worth should equal (age × annual income) ÷ 10. A 40-year-old earning $80,000 should target $320,000 net worth. Younger people naturally have lower or negative net worth due to student loans. Focus on the trajectory—is your net worth growing annually? By retirement, target 10-15× your annual income in net worth.

Should I include my home in net worth calculations?

Yes, include home equity (market value minus mortgage balance), but remember your primary residence isn't a liquid asset. Some prefer calculating net worth both with and without primary residence to understand liquid net worth (assets you could actually sell/access). Rental properties definitely count as their value exceeds your personal use.

How can I increase my net worth?

Increase net worth by: 1) Earning more income, 2) Spending less than you earn, 3) Investing the difference consistently, 4) Paying down high-interest debt, 5) Avoiding lifestyle inflation when income rises, 6) Investing in appreciating assets (stocks, real estate) rather than depreciating assets (cars, luxury items). Track quarterly to stay motivated.