Net Worth: Defined and Calculated

Net worth measures the total value of all assets owned minus the full amount owed to creditors. It is also equal to total assets minus liabilities. A person’s net worth may be calculated through their balance sheet process.

For one’s net worth to increase, the balance sheet must show either an increase in assets or a decrease in liabilities. To decrease assets, penalties must also increase by the same amount. Assets minus liabilities are equal to net worth.

Net worth is often used as a way to measure the success of an individual or a business. It represents the wealth owned by an individual or a corporation, which can also be observed through various publicly available records and resources such as annual reports and public records. The Federal Reserve’s Financial Accounts of the United States tracks aggregate household net worth across the country, offering a national benchmark for individual comparison.

Companies generally declare net worth as part of their total assets on the balance sheet. In contrast, an individual’s net worth is typically found in their assets on the balance sheet. Assets are tangible items that have economic value.

Net worth can also be referred to as “net assets.” It is a broad term used to evaluate a company or individual’s overall financial condition and performance.

The difference between this statement and the income statement can confuse some. The income statement measures a company’s profitability but does not give you a comprehensive view of your assets and liabilities. The balance sheet gives you this view by summarizing your assets and liabilities in one place. It is required to be reported at the end of each accounting period, as outlined by standards from the Financial Accounting Standards Board (FASB).

Methods used to determine net worth include

1. The asset approach.
2. The liabilities approach.
3. The hybrid method.
   Examples of determining net worth can include calculating the value of a home. The value is determined by subtracting all outstanding debt on the house, such as a mortgage or other loans, from the fair market value. The difference is your net worth.

Another example would be calculating the net worth of a business by deducting its total liabilities and then adding intangible assets such as patents, trademarks, and brands to determine actual value.

Various approaches can be used to calculate net worth levels for different companies within different industries.

The asset approach.

The asset approach uses a single method to calculate the net worth of any given company. For example, assume that a company has $100,000 in the bank and a $100,000 mortgage on a property valued at $150,000. This company’s net worth would be calculated as follows:

Assets (Cash + Property) = Total Assets – Liabilities
$100,000 – $100,000 = $-0.00

$100,000 + $150,000 = $250,000-$100,000=$150,000

Now that the company’s total assets and liabilities have been calculated, the company has a net worth of $150,000. This method can calculate the net value of all companies in any industry. The U.S. Securities and Exchange Commission (SEC) requires publicly traded companies to disclose their total assets and liabilities in annual 10-K filings, making the asset approach a universally recognized standard.

The liabilities approach.

The liability approach calculates net worth by adding all of a company’s total liabilities and subtracting it from the total amount of its assets. This approach is used because it allows one to view a company’s net worth while excluding its support from the calculation.

This allows for an accurate estimate of whether or not the company has sufficient cash, property, and other items to pay back all of its obligations. Credit reporting agencies such as Experian note that understanding your liabilities — including credit card balances, auto loans, and student debt — is essential to accurately calculating your personal net worth.

The hybrid method.

The hybrid method uses both approaches to calculate net worth and does not exclude any categories. This method is used to calculate the net worth of an individual or family. It is also instrumental in measuring a company’s total liabilities.

Many factors can be used to determine an individual’s or family’s net worth. These factors are not necessarily conclusive on their own, but they should be used in conjunction with each other to ensure that you are calculating the most accurate net worth possible.

The factors to be used include statements such as the balance sheet and the income statements, tax records, retirement accounts, current savings and investments, real estate holdings, debts owed on property or vehicles, and other assets. The Internal Revenue Service (IRS) also uses balance sheet data and reported asset values when auditing businesses and self-employed individuals, underscoring the importance of accurate record-keeping.

The net worth of an individual or family should also include their residence and any occupied cars.
First and foremost, you should be able to determine your net worth by compiling your assets from various sources. These assets are your investments, debts, property, retirement accounts, etc. Using your balance sheet, you will see that the total assets are equal to zero due to any debt repaid.

This means your net worth cannot be negative. You cannot keep the property and invest it to increase your net worth. However, you can use the net worth calculator to help you determine just how much your assets are worth. Personal finance platforms such as SoFi’s net worth calculator provide straightforward tools for aggregating your assets and liabilities in one place.

Financial statements are a highly cited data source for accurately calculating your net worth. These statements will often ask for an amount of debt and assets at the end of each accounting period. Here is how you would calculate one year’s financials:

An individual’s balance sheet is similar to a company’s but only includes the assets and liabilities they accumulated personally rather than for an entire corporation or business concern. A person’s balance sheet is also known as their net worth or personal assets.

Three main categories of assets should be considered when determining a person’s net worth.
These include financial support, non-financial assets, and financial liabilities. Each type has three subcategories for a total of nine in the asset section of a balance sheet.

These assets are counted at their fair market value. This can be the market value or any other value used to determine their accurate worth. The FDIC’s Money Smart financial education program recommends using current market valuations — not purchase prices — when listing assets on a personal balance sheet.

Assets are primarily made up of cash and real estate. The most common financial assets are stocks and bonds, checking and savings accounts, and credit cards.

These assets fall into one of two categories: consumer or investment items. Consumer items include cars and trucks, boats, furniture, jewelry, clothing, sporting goods, etc. Investment items are mainly intangible assets such as patents or trademarks. These are used to determine the worth of a business and should not be included in this section.

These items, such as savings accounts, stocks, mortgages, and bonds, fall under financial liabilities. Financial liabilities may or may not have a fixed value and are often due within a year. These include car payments, home mortgages, student loans, and credit card debts. According to the Federal Reserve’s Consumer Credit report, total outstanding U.S. consumer debt — including revolving and non-revolving credit — exceeds $5 trillion, making liability management a critical component of net worth calculations for most American households.

A person’s net worth is calculated by subtracting their total liabilities from their assets. The difference gives you your net worth.

Net Worth by the Numbers: A Comparison

Source: Federal Reserve Survey of Consumer Finances, 2023. Business figure based on U.S. Small Business Administration data.

Frequently Asked Questions

What is net worth and how is it defined?

Net worth is the total value of all assets a person or business owns, minus the total amount of all liabilities owed. In simple terms: Net Worth = Assets − Liabilities. It is the most comprehensive single-number measure of financial health available for individuals, families, and corporations.

How do you calculate personal net worth?

To calculate your personal net worth, list all of your assets — including cash, checking and savings accounts, retirement accounts, real estate, and vehicles — and total them. Then list all of your liabilities — including mortgages, student loans, auto loans, and credit card balances — and total those. Subtract your total liabilities from your total assets. The result is your net worth. Tools from providers like SoFi and Chase can help automate this process.

Can your net worth be negative?

Yes. A negative net worth occurs when your total liabilities exceed your total assets. This is common among young adults with significant student loan debt and limited savings. The CFPB notes that negative net worth is a recognized indicator of financial vulnerability, though it can be corrected over time through debt reduction and asset accumulation.

What is the difference between net worth and income?

Income is the amount of money you earn over a period of time — typically measured monthly or annually. Net worth is a point-in-time snapshot of your total financial position. High income does not guarantee a high net worth if liabilities are also high. Net worth is measured on a balance sheet; income is measured on an income statement.

What assets are included when calculating net worth?

Assets included in a net worth calculation typically fall into two categories: financial assets (cash, checking accounts, savings accounts, stocks, bonds, retirement accounts such as 401(k) and IRA) and non-financial assets (real estate, vehicles, business ownership interests, jewelry, and collectibles). All assets should be valued at current fair market value, not original purchase price.

What liabilities reduce net worth?

Common liabilities that reduce net worth include home mortgages, auto loans, student loans, personal loans, credit card balances, medical debt, and any other outstanding financial obligations. According to the Federal Reserve’s Consumer Credit data, credit card debt and student loans are among the most significant liability categories for U.S. households under age 45.

What is a good net worth by age?

According to the Federal Reserve’s 2023 Survey of Consumer Finances, median net worth by age group is approximately: under 35 — $39,000; ages 35–44 — $135,600; ages 45–54 — $247,200; ages 55–64 — $364,500; ages 65–74 — $409,900. These figures represent the midpoint of the U.S. population within each group.

How is a company’s net worth different from an individual’s?

A company’s net worth — often called shareholders’ equity or book value — is calculated the same way: total assets minus total liabilities. However, corporate net worth may include significant intangible assets such as patents, trademarks, brand equity, and goodwill. Publicly traded companies are required to disclose net worth through annual filings with the SEC, while private companies and individuals are not.

What is the difference between the asset approach and the liabilities approach to calculating net worth?

The asset approach begins by totaling all owned assets and subtracting liabilities from that figure. The liabilities approach begins by totaling all obligations and subtracting them from assets. Both produce the same mathematical result, but the starting perspective differs. The hybrid method combines both approaches to ensure no asset or liability category is overlooked, and is commonly recommended for individuals and families with complex financial situations.

How often should you calculate your net worth?

Financial planners generally recommend calculating your net worth at least once per year — ideally at the same time annually so you can track meaningful changes. Reviewing it more frequently, such as quarterly, can be helpful during periods of major financial change such as purchasing a home, paying off a large debt, or receiving an inheritance. Many personal finance platforms, including those offered by SoFi and major banks such as Chase, provide real-time net worth dashboards that update automatically.