The Net Worth Formula: What Is It and Why It Matters

The Net Worth formula for individual wealth and success in life is a list of your assets minus all of your liabilities

Mega stars and the uber rich like Oprah Winfrey, Michael Jordan, Mike Bloomberg, and Kim Kardashian, all have a substantial net worth. But so do you. You have a net worth also. Don't worry, you don't have to compare yourself to them.

The Net Worth statistics, according to CNBC, indicate that the median net worth for a person in America between the ages of 35-44, is $91,300, but again, don't let that discourage you. It's your turn to figure your net worth and then work to improve it.

It's always a great time to take a look at the Net Worth formula for individual wealth and success in life, and consider tracking it on a monthly, quarterly, or even yearly basis. The Net Worth formula is the standard that monetary wealth is typically measured, so why not track yours for yourself?

Sounds simple, but not so fast! A lot of people don't understand the importance of knowing their net worth. It may be scary, but if you want to get a handle on your finances, you have to know these numbers. What is classified as an asset? What constitutes a liability? What does it matter? Who cares?


Your Net Worth is a list of your assets minus all of your liabilities.

An Asset includes cash or any item(s) you can sell for cash, such as:

  • Money in your checking account and your savings account

  • Value of all of your investment accounts (this includes retirement accounts)

  • The value of your vehicles

  • The Market value of your home

  • Financial worth of any business interests

  • Cash value of any insurance policies

  • Value of all of your jewelry, art, furniture, and other personal items

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When figuring the value of your assets, be sure to assign accurate and realistic values. Sometimes you have to assign an approximation of a value to an asset because it's actual value isn't known until it's sold.

Liabilities include any money you owe to another person or entity, such as:

  • Mortgage amount you owe

  • Amount owed on all of your vehicles

  • Student loan amount

  • Personal loans

  • Credit Card debt

  • Hospital bills that are outstanding

  • Any other debts owed

A liability is simply what you owe. It's easier to be accurate and factual with a liability because what you owe is known. You just have to take some time out to call, or check your balances.


I calculate my net worth using an excel spreadsheet or by hand. For those of you who want to use a more sophisticated online net worth calculator, there are plenty available. Click below for two Net Worth Calculators:

Click HERE


Click HERE

Compute your net worth once every six months or so and develop a specific goal, and action steps, to increase it.



Here are just a few reasons why knowing your net worth are important:

  • Knowing your net worth will help you understand your financial well-being: Your net worth gives you an snapshot of your financial picture and your financial health.

  • Knowing your net worth will help you develop a concise plan for your financial future: Whether you are wanting to invest, plan for a family, or invest your money in a specific appreciating asset, knowing your net worth will help you get a gauge on where you are. It can help you carefully develop a vision and plan.

  • A grasp on your net worth helps with decision making: Your net worth calculation is the first step to making wiser budgeting decisions and better income allocation decisions.

  • A handle on your net worth can help you focus on reducing your liabilities and lower your expense: Where do you need to cut back at? What types of things do you need to do to lower your expenses so that you can free up money for investments? These are the critical questions that can be answered by figuring your net worth.

Your net worth is what can stick around and help others when you are no longer able to. Your net worth is also your retirement, what you have left, and what you can live on in your older age. In other words, your net worth ultimately defines your standard of living when you get older! Your net worth matters more then most of us care to imagine.


A negative net worth is not the end of the world and it certainly is not an indictment of you as a person, your character, or your integrity. It also doesn't mean it's time to file for bankruptcy. A negative net worth simply means that its time you begin to focus on getting it to a positive number as quickly as possible. The most important thing to remember is, that it's possible.

IS YOUR SALARY AN IMPORTANT PART OF THE NET WORTH FORMULA for individual wealth and success in life? When it comes to calculating your net worth, you can forget about your salary. It means very little in the calculation of your wealth and your net worth. In fact, your salary is a pretty frivolous figure because it only applies to your ability to pay your everyday bills and expenses.

Do you have to have a substantial income to have a substantial net worth? NO you don't. This may sound controversial to some of you reading this, but you need to sort of minimize your focus on your salary and income, and focus a majority of your time, energy, and efforts, on the net worth formula. Can your income help your salary? Absolutely yes.

A higher salary and increased income can help you grow your net worth faster. Just keep in mind that your income is simply what you bring in. If you make more and spend more, then you nullify your increased income. So while salary and income are helpful, they aren't the most important thing to focus on increasing when starting to look into your own net worth.


  1. Pay attention to it - People that have money, focus on the money. Check your numbers in your net worth formula at least a couple of times every year.

  2. Develop a zero dollar budget - You have to have discipline around your spending habits and money management skills, in order to truly build your net worth.

  3. Create a real plan to eliminate your debt - Lowering your debt reduces one side of the equation

  4. Enroll in your jobs 401(k) or invest in your own Roth IRA - This provides a definite boost to your assets side of the equations.

  5. Invest in assets that appreciate in value - Assets like real estate, stocks and bonds, and businesses, typically appreciate in value. Of course this is not a guarantee, but these types of assets can have a massive impact on the bottom line of your net worth.

  6. Create a well paying side gig or side hustle - This is a business that adds to your appreciating assets, or, at the very least, it can be a job that will provide you with extra income to pay down the debt on your liabilities.

One powerful thing I've done to build my net worth is use the money I would pay on car payments and put that money into appreciating assets. Cars are depreciating assets and making payments on a depreciating asset will destroy your net worth formula for building individual wealth and success.

I haven't had a car payment in nearly 10 years and it's one of the best financial decisions I've ever made.

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Click HERE for more ways to increase your net worth.

Figuring your net worth can be eye opening, but developing a plan to increase your net worth can transform your life. Figure your net worth on a bi-annual basis and create specific goals to increase it. If you want money, you have to have a strategy.

Yes, on average, some groups earn less money, and start from a different position in life then others. However, that shouldn't be an excuse for avoiding the net worth formula, nor should it stop you from saving, investing, making good financial decisions, growing your money, and building your net worth. Don't avoid the net worth formula. Use it.

Understanding and learning what your personal net worth is, and developing ways to regularly increase it, are things that can be done by anyone, regardless of your circumstances.

Feel free to reach out to me by clicking HERE

I will be glad to help you get started developing your plan.





Eric is a manager of federal government contracts by day, and a mentor, coach, blogger, voice over artist, top-rated power seller on Ebay, real estate investor and landlord, city planning & zoning commissioner, and author by night. From poverty and a negative net worth at 30 years old, to a multiple six figure net worth today, Eric has had to fight through mistakes to proactively learn about money. Eric's mission today is to reach back and help other ordinary people be empowered to be extraordinary with their money.

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