What is Net Worth?

Net worth is calculated by subtracting everything owed (liabilities) from everything owned (assets). Assets include cash, checking and savings balances, retirement accounts (401(k), IRA), brokerage accounts, real estate equity, vehicles, and personal property of significant value. Liabilities include mortgage balances, auto loans, student loans, credit card balances, personal loans, and any other outstanding debt.

The resulting number can be positive, zero, or negative. A negative net worth means liabilities exceed assets, a situation common among recent graduates with student debt or new homeowners with minimal equity. The direction of change over time matters more than the absolute number. A rising net worth signals that assets are growing faster than debt, either through saving and investing or through debt reduction.

The SEC uses net worth as one criterion for accredited investor status under Regulation D. For that purpose, the primary residence and any mortgage debt secured by it (up to the home's fair market value) are excluded from the calculation. An individual qualifies as an accredited investor if net worth exceeds $1 million, excluding the primary home.

For intermediate financial planning, it is often useful to calculate liquid net worth. This variation excludes illiquid or restricted assets, such as home equity, physical vehicles, personal property, and tax-deferred retirement accounts subject to early withdrawal penalties, focusing purely on cash, cash equivalents, and taxable investment accounts. Liquid net worth reflects the actual cash capital a household can deploy immediately in an emergency or to capture a sudden investment opportunity. In addition, tracking net worth highlights the difference between high income and high wealth: a high earner who spends their entire salary on depreciating assets and lifestyle inflation will have a lower net worth than a moderate earner who consistently routes savings into income-generating assets. Because asset values fluctuate alongside stock and real estate market cycles, net worth should be measured as a long-term trajectory rather than a daily scoreboard.