Your net worth is what you own minus what you owe: add accounts, property, investments and other meaningful assets, then subtract mortgages, loans, credit cards and outstanding taxes. Value your home and car with a prudent, consistent method. Measuring once a month, on the same day and with the same method, shows the trend more clearly than a single bank balance.
Most people judge their financial situation by looking at their bank balance. It is the most accessible measure and also the most misleading: it jumps on payday, drops when rent goes out, and says nothing about what you owe. Net worth is the alternative, and it fits in one subtraction: what you have minus what you owe.
The formula
Net worth = assets − liabilities. That is all. The difficulty is not the arithmetic, it is deciding what goes on each side and at what value.
| Assets (what you have) | Liabilities (what you owe) |
|---|---|
| Current and savings accounts | Outstanding mortgage capital |
| Home and other property | Personal and car loans |
| Investments and pension plans | Credit card balances |
| Car and other valuable items | Instalment purchases and financing |
| Money owed to you | Taxes not yet settled |
If you are self-employed, that last row is the one most often forgotten: VAT you have collected but not yet settled in form 303 is a liability, not an asset. It is in your account, but it is not yours.
Valuing the tricky parts
Accounts are easy: the balance is the balance. Everything else needs judgement, and the judgement matters less than you would think as long as it is consistent.
- Home. A conservative market value, not the one you would like. Revisit it once or twice a year, not monthly: update it constantly and property noise drowns out the effect of your own decisions.
- Mortgage. The outstanding capital, not the sum of the remaining payments. Those payments include future interest you do not owe yet.
- Car. An approximate second-hand value, and assume it falls every year: it is one of the few assets that visibly depreciates.
- Personal belongings. Leave them out unless genuinely valuable. Padding net worth with furniture and electronics fools no one useful.
The golden rule: a conservative valuation applied the same way every time beats a precise one whose method changes each quarter. What you are reading is not the number, it is the trend.
A worked example
This is how it looks for someone who owns their home, has a financed car and some savings:
| Item | Side | Amount |
|---|---|---|
| Current and savings accounts | Asset | €9,500 |
| Home (conservative value) | Asset | €185,000 |
| Car (second-hand) | Asset | €11,000 |
| Mortgage (outstanding capital) | Liability | −€142,000 |
| Car loan | Liability | −€7,300 |
| Card balance in instalments | Liability | −€600 |
| Net worth | €55,600 |
Notice what is not there: the sum of the mortgage payments still to come, the furniture, the sentimental value of anything. And notice what is, however uncomfortable: the €600 on the card. Small debts are the ones most often forgotten, and usually the ones with the highest rate.
Why it beats your balance
An example makes the difference obvious. Picture two consecutive months where your account goes from €4,000 to €3,500. By balance, you went backwards. But if in those two months you paid €900 off your mortgage, your net worth rose by €400: you converted cash into less debt.
It works in reverse too, which is what makes it honest. A month where the balance rises because you financed a sofa over 24 months does not improve your net worth: you added an asset and a nearly identical liability. The balance applauds; net worth does not fall for it.
It is the only figure that captures all three things you can do with money at once: spend it, save it, or owe less.
How often to measure it
Once a month is the frequency that almost always works: enough to see the trend, not so much that you obsess over swings you do not control. Same day each month, same valuation method.
Weekly is counterproductive: at that scale nearly everything you see is noise, and you end up reacting to movements that mean nothing. Yearly fails for the opposite reason — by the time you spot something going wrong, you have been heading that way for twelve months.
And a warning about expectations: it is completely normal for net worth to be negative for years. A freshly signed mortgage or a student loan puts it below zero without that meaning anything is wrong. The absolute number says far less than its direction.
If you want to see how it might evolve at different contribution rates, the savings simulator covers the asset side, and the mortgage simulator tells you how much capital is still outstanding at any point, which is the other half of the subtraction.
Common mistakes
- Counting the mortgage as the sum of future payments instead of outstanding capital.
- Revaluing the home upwards every month and mistaking the market for your progress.
- Forgetting small debts: cards, instalment purchases, financing deals.
- If self-employed, not subtracting VAT and withholdings still due.
- Changing the valuation method between measurements: the series stops being comparable.
- Being discouraged by a negative net worth early on, when the curve is what matters.
