Melissa Myers, CFP®

(231) 733-1166

Net Worth:  What It Is

Net Worth: What It Is

| March 21, 2018
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Why You Should Care

Your net worth is one measure of your financial health.  Say what???

Have you always thought it was your credit score that's important? 

While credit score is important, it is not the sole indicator of financial success.  Instead of credit score, I recommend that you measure your financial health with a combination of your net worth, your ability to spend less than you have coming in each month, and your credit score.

Net Worth

So what is "net worth?"  Simplistically defined, net worth is the number you get after you add up the value of everything you own and then subtract the total of everything you owe.

Why Net Worth Is Important

So, what’s the big deal about net worth?  Here’s the deal.


When you have a positive net worth, you have more assets than debt.  The more assets you have, the better prepared you’ll be for opportunities that come your way.  The higher your net worth, the more freedom you have.  You're able to embrace opportunity.  Opportunities are everywhere, you just need to look and make wise choices.

Real Estate

Perhaps you’ll find opportunities to grow your net worth in real estate.  Would you like to own a better home?  Purchase a second home?  Buy a rental or a commercial property?


Hate your job?  Ready for a do-over?  Feel like being your own boss? 

The more financially secure you are, the more financially prepared you’ll be, to quit your job, take a different job, or become self-employed.  BTW…A side benefit of growing your net worth is that the higher your net worth, the more you’ve reduced risks associated with self-employment, getting downsized, or changing careers.

Life Experiences

A positive net worth not only increases your opportunities to make money, it enables you to create life experiences, in line with your values, for you and your family.  I know a family that took a year off of work and sailed America’s Great Loop with their toddler!

Early Retirement

Dreaming of an early retirement?  What do you need?  Income, right?  I am a big fan of residual income.  In addition to residual income, you’ll likely need a nest egg too.  A nest egg, is the money you’ve set aside for the future.  In retirement you can spend your nest egg or use it to produce residual income.


Another reason that net worth is important is that the larger your net worth, the more leverage you have.  When you use leverage, you use the equity in something you already own, to finance the purchase of something else.  Buyer beware!  Leverage can get you into a lot of trouble.  Exercise caution and prudence when using leverage.  Let’s say you used the equity in your house to buy another piece of property, then lost your job, or had a health crisis, and couldn’t pay your mortgage, you could lose your home to foreclosure.  Be very careful with leverage!!!

Cash Purchases

Safer than leverage, is buying things with cash.  Yes, you can buy things without financing them.  My last four vehicles have all been bought with cash.  I wrote a check and love not having a car payment.


Are there causes to which you would like to donate money?  The higher your net worth, the more generous you can be with your giving.  You can give financially, as well as give by donating your time, and expertise.

Net Worth Calculation

Let's do the math.

Assets (what you own) – Liabilities (what you owe) = Your Net Worth

Think of net worth this way.  If you sold everything you own today, and then paid off all of your debts, the amount remaining would be your net worth.  I’m not suggesting that you sell everything and pay off all of your debts in order to do the calculation.  That would be silly.  This is just the formula for calculating net worth.  I do encourage you to consider what debt you could pay off and consider how long it would take you to pay off ALL of your debt.

The First Step is to Get Organized

First, gather a pen, a sheet of paper, and a calculator.  That was easy right?

Second, collect your statements from any and all places you have money.

Do you have:

  • Bank and/or Credit Union Accounts
  • Investments
  • Savings Bonds
  • Stock Certificates
  • Cash Value Life Insurance
  • Good old cash.  Count it all, even the money in your change jar!
  • Gift Cards

Third, write the amount for each account and your cash total on your paper under the heading “Assets.”

Do you have:

  • A House
  • Car
  • Collectibles/Antiques
  • Things with Motors
  • Pets
  • Personal Belongings
  • Real Estate
  • A Business
  • Intellectual Property

“I have no idea how much it’s worth.”

Use your best judgment.  You can guesstimate.  Seriously, how much could you reasonably get if you sold your belongings?  How much would you pay if you were to buy that item, in the condition it is in, today?  Still stuck?  There’s always Google.

Fourth, under the “Assets” column, write the value.

Fifth, create a heading “Liabilities.”

Debt Free?

“Yeah, right.  In my dreams.”  Sound like you?

Calculate the total of your liabilities.  What are liabilities again?  Liabilities are debts.  Debt is what you owe.

Do you owe on:

  • Car loans
  • Loans on things with motors
  • Credit Cards
  • Student Loans
  • Medical Bills
  • Mortgage
  • Personal loans from friends and family
  • Bills in collections

If you don’t have any debt, write a big, fat, zero under “liabilities.”…(BTW…good job!!!)

Ready to find out your net worth?

The sixth, and final step, is to subtract your debts from your assets.  The answer is your net worth.



=Net Worth

“How often should I calculate my net worth?”

Once a year is fine.  Set a recurring event on your online calendar with no end date.  Schedule your net worth calculation for a day that is easy to remember.  I like doing my net worth calculation on New Year’s Day.  Does that work for you?  How about your birthday?  Just pick a date and make it a recurring event each year.  Record your net worth in a place where you can easily find it.  A special file folder, a spreadsheet, you get the idea.

Keeping Track of Net Worth

Keeping it simple.  All you need to have is “My Net Worth” as a title or heading. Then in a column or row the date and your net worth.

My Net Worth

2018                       2019                       2020                       2021                    2022                     

$x                           $xx                         $xxx                       $xxxx                    $xxxxx              

Get the idea?

“What About My Credit Score?”

Credit score is important if you want to buy things on credit.  Too low of a credit score can mean that you pay higher interest rates or might even be denied credit.  As part of routine background checks, potential employers often check your credit.  Insurance companies base their insurance rates, in part, on your credit score.  Looking to rent?  Be prepared, landlords check credit too.

Credit scores are important, and they aren’t the only figure to focus on.  Credit score is a measure of how frequently you borrow money and how well your repay your debts.

If you have a low credit score and want to improve it, first start with calculating your net worth.  Then check your credit.  At annual credit report you can check your report once a year, however it doesn't give you your credit score.  Checking your credit score once a year is a good idea too. 

How about putting a recurring reminder on your calendar for once a year?  Check your credit report, credit score and calculate your net worth all on the same day, once a year, every year.   

“So, How Do I Increase My Net Worth?”

Not by credit score alone.  Your credit won’t single-handedly increase your net worth.  To increase your net worth, spend less than you earn, save for a rainy day, have the proper insurance in place, and make wise investments.  Growing your net worth takes discipline and intentionality.  Frugality, saving, and investing, while paying down debt is the key to growing your net worth.

Tracking Magic

When you track your net worth and credit score, you’ll subconsciously start to make better financial decisions.  You’ll also start to make intentional decisions so that you can pursue your goals.  Being intentional about tracking your net worth is an act that has subliminal benefits, as well as, conscious results.  Consider this concept; what can be measured, can be managed.  If you want to lose weight what is the first thing you do?  You jump on the scale, right?

Want to grow your net worth?  Start tracking it on a regular basis.  Want to improve your credit score?  Pay your bills on time and reduce debt.

What Are Your Goals?

Example Net Worth Goals:

“Change negative net worth to positive net worth in the next 3 years.”  

 “Grow net worth by $25,000 over the next 5 years."

“Achieve a net worth of $1,000,000 by the age of 40.”

Get Uncomfortable

The thing about goals is that your goals should make you a little uncomfortable.  They need to be specific, be measurable, have a time frame, and be realistic.  I’m a big believer in posting your goals and sharing your goals with an accountability partner. 

When you post your goals in a visible location, it’s a reminder to yourself to focus on your goals.  When you share your goals with an accountability partner, you’re more likely to achieve your goals.  You don’t want to disappoint your accountability partner, do you?

Net Worth Before Budget

If you are ready to improve your financial situation, don’t, I repeat don’t, start by making a budget. 

In order to improve your financial situation, it’s important to determine where you stand financially.  The first step is to calculate your net worth. 

Once you’ve calculated your net worth, check your credit.  Messes in your credit history will need to be cleaned up.  That probably sounds like it will be boring.  Yes, it will.  What will be exciting is seeing your net worth and credit score improve over time.  If you made the mess, you are responsible for cleaning it up.

Before creating a budget, create a list of your expenses.  Start with looking at your last three months bank statements and put categories next to each expense.  Here is a sample


form for your reference.  Notice how some expenses are "essential" and others are "discretionary?"  Are your discretionary expenses more than your essential expenses?  This could be a significant detail for your financial future.  

"I don't spend that much."  Look at the discretionary expenses total.  Did you spend more than you thought for a particular category?  I hear it all the time, especially for clothes and restaurants.

Victim Beware

Identity theft is real.  If you didn’t make a mess of your credit and someone else did, you’ll need to take time and personal initiative to get those messes cleaned up.

Financial Health

Financial health is more about Net Worth than Credit Score.  Credit scores don’t reflect the assets you’ve accumulated or failed to accumulate.  Your net worth reflects the assets you’ve accumulated.  The higher your net worth the more opportunities available to you. 

The higher your net worth, and the lower your debt, the less risk you have when doing something like starting a business, buying a car, or buying a home.

Start improving your financial health by improving your net worth.  Athletes discipline themselves to train.  Training allows them to compete against their competition, improve their personal stats, and set new records.  Do yourself a favor and compete against yourself. 

Making a base-line recording of your net worth as of today.  Discipline yourself to calculate your net worth this year, next year, and every year in the future.


I propose that we reframe how financial success is measured.  Let’s make net worth our primary measure of financial success and include credit score as secondary measure.  Are you game?

Learn More

 If you're ready to take the next step and schedule a no-cost, no-obligation appointment with Melissa, reach out via phone at (231) 733-1166 or use the "Have a Question?" form on the left hand side of this blog post.

If you're not quite ready, here is a list of some of my favorite books.

Melissa Myers,CFP® is passionate about teaching people how to master their money and pursue prosperity.  Her life changed when she committed to eliminating debt, committed to using a plan to master her money, and developed a practice of expressing gratitude for the abundance in her life.  You too, can strive to be master of your money and find your prosperity!

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