The First Step: How to Calculate Net Worth for Beginners
- Gin
- Aug 15, 2025
- 7 min read
Updated: Nov 9, 2025
If someone asked you what your current net worth is, would you know the answer?
Knowing your net worth is the single most important step in creating your plan to escape the rat race. It’s the same as planning a hike or any other trip; before planning how to reach your goal, you first need to know where you’re starting from.
Net worth isn’t a term exclusive to wealthy celebrities. Everyone has a net worth. It’s simply a way to measure your financial health at any given time.
Many Americans don’t know what their net worth is or how to calculate it. In this post, I'll walk you through exactly how to calculate net worth for beginners—it's easier than you think and can be fun. After reading this post, you'll know exactly how to do it. Personally, I like calculating our net worth a few times a year.
NET WORTH FORMULA: ASSETS MINUS LIABILITIES EXPLAINED
The net worth formula is your financial GPS. The core formula for calculating net worth is simply: Assets minus Liabilities equals Net Worth (also known as Equity).
You may have heard these terms before but never understood what each means, so let’s break it down. I’ll explain assets, liabilities, and net worth (equity) in two different ways. The first will be as it relates to personal finance. The second will be how it relates to businesses.
When it comes to personal finance, you can understand assets, liabilities, and net worth (equity) as follows:
Assets: What you have
Liabilities: What you owe
Equity: What you own (the difference between the value of the asset and the liability)
In other words, equity, or net worth, is the total value of everything you own after you pay off any debts. That is all it is.
For example, perhaps you have a $300,000 house. Most likely, you also have a mortgage. Let’s say it’s $240,000. With these two figures, you can calculate the equity.
Asset: $300,000 house
Liability: $240,000 mortgage
Equity: $60,000
In this example, it’s important to note that you may have a $300,000 house, but you don’t own a $300,000 house. Because you owe $240,000, you actually only own $60,000 worth of the house.
STEP-BY-STEP GUIDE: HOW TO CALCULATE YOUR NET WORTH
Now that you understand the parts that make up the net worth formula, calculating it is easy.
Starting with your liabilities will probably be the easiest. Remember, liabilities are what you owe to someone else. We're talking about student and car loans, mortgages, unpaid taxes, credit card balances, and outstanding bills, for example.
Gather all of your statements, which should list any remaining balance you owe. Add them all up for a total.
Next up are your assets. Your assets are anything that has cash value. This can include your bank accounts, retirement accounts, 401(k) accounts, stocks, bonds, CDs, and pensions. Don’t forget those gold bars in your safe! I don’t have any, but maybe you do. Very cool, by the way, if you do.
Subtract the total of your liabilities from the total value of your assets, and there’s your current net worth.
Wait a minute, you say. What about my house, car, jewelry, and collectibles? They have cash value. Should they be included in my assets?
Great question. If you do a quick Google search on how to calculate net worth, many sites will probably say to include these items. But here's the honest answer to whether you should include your house and the rest of your stuff in net worth calculations.
SHOULD NON-CASH ASSETS (HOUSE, CAR, JEWELRY) BE INCLUDED IN YOUR NET WORTH?
Collectibles: Collectibles are difficult to put a value on unless professionally appraised. People frequently overestimate the value of their collectibles. I guarantee there are still some old ladies out there sitting on a hoard of Beanie Babies, thinking they’re rich.
For most collectibles, it also takes time to find a buyer. And any person who is planning to resell what they buy from you will want to pay less than what it’s worth.
My take: For these two reasons, exclude collectibles when calculating net worth.
Jewelry: The jewelry you have is probably worth less than what you think. It’s easy to confuse sentimental value with monetary value. No buyer will care that your great aunt came to this country with nothing except that ring she passed on to you.
My take: For the same reasons as collectibles, exclude jewelry.
Vehicles: Typically, a car is the second most expensive purchase a person will make in their lifetime. It also loses value like crazy once driven off the lot. Even if you’re that rare person whose car retains its value, what would you do if you sell it? I’m guessing you’ll probably buy another car or spend a lot of money on Uber rides.
My take: Exclude the value of your car; however, do include any remaining loan balance in your calculations. Even if your car is worth nothing, you’re still on the hook for the loan.
Houses: It’s not easy to get an accurate value of your home on your own. Yes, you can type in your address on Zillow or Redfin to get estimates, but they are not accurate. Estimates on these sites are ballpark figures based on data that can be grossly out of date. They don’t take into account any upgrades you did or didn’t do.
Only a real estate agent can give you an accurate number after seeing your home in person and doing market research. When I sold my first home, I checked Redfin first to get an idea of what I could sell it for. Redfin's estimate made me hopeful. But my real estate agent later placed a value that was 30% lower because it lacked so many upgrades compared to other homes.
And don't forget, buyer negotiations, commissions, and closing costs will reduce the amount of cash you get from our sale. And selling a home can take months.
My take: A house is often the single biggest asset a person will own. And it’s also often tied to a person’s single biggest liability: the mortgage. Absolutely include the mortgage in calculations because you owe that liability.
If you choose to include your house as an asset and don’t have an estimate from a real estate agent, use the lowest estimate you can find online. Whatever number you use, subtract 10% for closing costs and commissions to get a ballpark value.
YOUR NET WORTH: WHY CASH AND LIQUID ASSETS ARE KING
Cash is king, so I only include cash and cash-equivalent assets (stocks, bonds, etc.) when calculating net worth. Even though including our house would be a big boost to our net worth, it's safer to exclude it. Here's why.
Many people have a large portion of their net worth tied to their house. And you may have heard the phrase “house-rich, cash poor” before. This is a person who has significant equity in their home but little cash on hand for necessities or emergencies. They may have a high net worth on paper, but are struggling in reality.
The value of your home doesn't help you cover immediate needs. Sure, you can borrow money against your home’s equity, but you’ll need to pay it back with interest. Of course, you could sell your home, but that takes time and money. Plus, you’ll still need to buy or rent a place to live in afterwards.
Excluding your house will give you a much more conservative net worth. By counting only your liquid assets, you’ll know exactly how much cash you have on hand. No need for appraisals or finding a buyer.
TIPS:
If you calculated your net worth including your home, do a separate calculation without it. This way, you have two sets of numbers: one including your house and one that is only cash.
Calculate your net worth at least twice a year. Keep a record with dates to see where you are along your financial path. It's like checking a GPS for your current location during a hike. Doing so will help you stay on track towards your goal.
HOW DO YOU MEASURE UP AGAINST OTHERS
If you’ve calculated your net worth, congratulations, you’re more aware than most Americans. But I bet you’re curious to know how your net worth compares to the average American’s.
Below are numbers for the average American household from a survey conducted by the Federal Reserve. Keep in mind that a household could be either a single person or a married working couple. Also, the average numbers would include extremely wealthy individuals, such as Elon Musk, Jeff Bezos, and Warren Buffett. The median numbers better reflect the typical household as they are not skewed by extremely high net worth households.
The following net worth data for individuals comes from Empower's anonymized client data.
So, how do you compare to people in the same age group?
Don’t be discouraged if your net worth is lower. It just means there's some work to be done. It's possible to turn things around.
Having a higher net worth right around the median or slightly higher doesn't necessarily mean you're in great shape either. The median numbers are definitely on the low end.
Retiring in your 60s with $290,000 would be very risky. You should ideally have a much bigger nest egg.
The true purpose of showing you these numbers is just to get an idea of how your peers are doing. Based on the median numbers, most Americans are not financially well-prepared for retirement. This is especially the case if these net worth numbers include home equity.
But now you know your starting point on your path to escape the rat race. And you know how to check your financial health along the way. That's a big first step!
The next step in your escape plan is figuring out your goal. We'll look at that in an upcoming post.
If you found this post eye-opening, leave a comment below.
See you at the finish line!
Disclaimer: I’m not a licensed financial professional. This blog shares my personal experiences and opinions around money, investing, and early retirement. It’s for informational and educational purposes only—not financial, legal, or tax advice. Always do your own research or consult with a qualified professional before making any financial decisions.
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