May 2025
Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension
Net worth is the value of someone's financial assets minus their liabilities (debts). In other words, what they own minus what they owe. Net worth is a key indicator of financial health and a "snapshot" of someone's finances at a point in time. To calculate net worth (PDF), total all assets, including cash, investments, real estate, vehicles, and valuable possessions. Then, subtract all liabilities such as loans, credit card debt, mortgages, and other financial obligations.
For example, suppose Sarah owns a house worth $300,000, a car worth $20,000, has $50,000 in savings, and $30,000 in investments. Her total assets are: $300,000 + $20,000 + $50,000 + $30,000 = $400,000. She also has a $200,000 mortgage and a $10,000 car loan. Her total liabilities are $200,000 + $10,000 = $210,000. Subtracting debts from assets, Sarah's net worth is $400,000 - $210,000 = $190,000.
Ideally, your net worth should increase over time as a result of regular savings, investment growth, and debt repayment. Below are seven small steps to increase your net worth:
Set Specific Financial Goals- Make your goals specific with a deadline date and a dollar cost. This will help you determine how much money you need to save. Looking ahead can force you to make plans and take action that will improve your net worth.
Earn Money on Your Money- Shop around for a high-yield savings account for your savings. Look for an annual percentage yield of at least 3.5% currently (May 2025). Unless your savings is earning enough to compensate for both taxes and inflation, you are losing money.
Choose Low-Expense Investments- Look for mutual funds, exchange-traded funds (ETFs), and other securities with low expense ratios (expenses as a percentage of investment assets). This information can be found in the prospectus that describes an investment product.
Take Advantage of Tax Laws- Set up tax-deferred retirement savings plans, such as 401(k)s and traditional individual retirement accounts (IRAs), or Roth accounts funded with after-tax income. Another tax-saving strategy is holding investments for over a year to qualify for lower tax rates (0%, 15%, or 20%) compared to short-term gains taxed as ordinary income.
Prioritize Your Spending- Concentrate your spending on needs instead of wants. Only you can tell the difference. Don't buy anything on sale, no matter how inexpensive, if you don't need it, can do without it, and never intended to buy it before seeing it on sale. For "big ticket" items, do a Rule of Three (PDF) comparison among competing vendors.
Insure Wisely- Spend the bulk of your insurance dollars to insure against large losses such as the loss of a wage earner's income due to death (life insurance) or disability (disability insurance), liability for damages to others, and destruction of your home in a natural disaster.
Educate Yourself About Personal Finance- Keep up to date on changing tax laws and new investment products through financial publications, webinars, blogs, community seminars, and print and social media. Consult financial professionals, when needed, for specific advice and answers to your questions.
For additional information about personal finance topics, visit the Rutgers Cooperative Extension Personal Finance website.