Takeaways
- Net worth is calculated as your assets minus your liabilities.
- Net worth provides a momentary snapshot of your financial health.
- A high net worth is a sign of financial strength and fiscal flexibility.
- Saving an emergency fund and investing will grow your net worth.
- Paying off debts like student loans, credit cards, and personal loans improves net worth.
How do you measure financial health? This is a difficult question because choosing a single metric to gauge your performance can be difficult. High incomes don’t necessarily translate to high levels of financial health (just ask HENRYs). Low debt levels don’t always mean financial stability. Net worth is a metric used universally by personal finance experts to compare relative levels of financial health easily.
What Is Net Worth?
Net worth is defined as your assets minus your liabilities. It is a standard formula used to measure your financial health, taking a holistic view of your finances. Net worth is what is left after all your liabilities, or what you own, are deducted from your assets.
Read More: 9 Ways to Earning Passive Income in 2025
How to Calculate Net Worth
The first step to calculating your net worth is to list out all your assets. Assets include everything from the value of your car to your emergency fund and everything in between. Here is a list of common personal assets:
Personal Assets:
- Cash
- Checking Account
- Savings Account
- Emergency Fund
- Slush Fund
- Investments
- Retirement Savings
- Real Estate
- Vehicles
The next step is to inventory all your debts (liabilities), including consumer debt, mortgages, and student loans. Here is a list of common personal liabilities.
Personal Liabilities:
Calculator
Net Worth Calculator
Assets
Liabilities
Your Net Worth
Wait! A negative net worth means that you owe more than you own. Increase your net worth by paying off debt quickly.
Nice Job! You have a breakeven net worth. Increase your net worth quickly by saving, investing, and paying off debt.
Great work! A positive net worth means that you own more than you owe. Continue to increase your net worth quickly by saving, investing, and paying off debt.
With your total assets and liabilities in hand, it is time to subtract your liabilities from your assets. You will have a positive number, a negative number, or a zero.
- Positive Net Worth: If your assets are higher than your liabilities, you have a financial cushion if you pay off all liabilities. A positive net worth is a sign of fiscal health, and you should work on making your net worth as high as possible.
- Zero Net Worth: If your assets equal liabilities, you have no financial cushion. Depending on your history, this could signify progress (meaning you paid off past debts). Alternatively, it could be a sign of undisciplined budgeting. A smart money habit is to increase your net worth from zero to positive as quickly as possible.
- Negative Net Worth: If your liabilities exceed your assets, you are financially underwater. A negative net worth means that if all your liabilities were to come due immediately, you would not be able to pay them off, which is a sign of being highly leveraged. A smart money habit is to figure out how to increase your net worth and make it positive.
Read Also: 14 Wacky Ways to Cut Money Expenses Quickly
7 Ways to Increase Your Net Worth
You can enhance your net worth by pulling a variety of financial levers. Here are seven ways to boost your net worth:
1. Pay Off Your Credit Cards
Almost every American consumer is familiar with consumer debt. Credit cards are used in everyday transactions and help make payments for goods and services simple and quick. However, not all credit cards are alike, so choose the best one for your spending habits.
If you are not aware of your financial plan or stick to your budget, it can be easy to quickly spend a lot of cash with credit cards because the transaction fees are so low. However, the benefits of credit cards are also their burdens.
Credit card debt is a financial liability. By paying off credit card debt, you can decrease your financial liabilities, which increases your net worth. You can choose whether to pay off credit cards using the snowball or avalanche method or decide if you need to consolidate your consumer debt.
Related: The 5 C's of Credit
2. Pay Off Your Student Loans
Over 46 million Americans owe student loan debts.[1] Like credit card debt, student loans represent a financial liability. If you have student loans and want to increase your net worth, you should actively try to pay them off as quickly as possible.
Read This: How to Pay Student Loans Quickly
Paying off your student loan represents a significant financial milestone. Building a budget can help you prioritize this financial goal.
3. Pay Off Your Mortgage
If you own a home, condominium, or other real estate, you are likely familiar with how a mortgage works.
According to the Consumer Financial Protection Bureau, a mortgage is an agreement between you and a lender that gives the lender the right to take your property if you don’t repay the capital borrowed from the lender plus interest. A mortgage is the loan you owe the lender on your home.
Get Smart: 6 Hidden Costs of Homeownership
A mortgage is a financial liability and decreases your net worth. By working to pay off your mortgage quickly, you can reduce your outstanding debt to the lender and simultaneously increase your home equity.
4. Increase Your Savings
Boosting your savings with an emergency fund or increasing your slush fund can help you improve your net worth. By saving $3,000 for an emergency fund and 3-6 months’ worth of living expenses, you can distance yourself from unforeseen financial expenses wreaking havoc on your finances.
This financial cushion provides more financial security and simultaneously increases your net worth because your emergency fund and slush fund, which you can grow without doing anything by keeping them in a high-yield savings account, should be held in cash. These accounts are financial assets that increase your net worth.
Take the Next Step:
Member FDIC
Quontic High Yield Savings Account
Smart Money Rating: 5/5
APY: 4.50%
Required Minimum Balance: $100
5. Save For Retirement
Saving for retirement can be an excellent way to boost your net worth. Too many people don’t take advantage of employer-sponsored 401(k) plans. These retirement savings plans allow you to save up to the 401(k) Contribution limit for 2024 of $23,000. For those 50 years or older, there is an additional $7,500 catch-up contribution.
If you can pay off your debts – consumer debt and student loans – as mentioned above, you could reallocate the cash flow from paying off your debts to save for retirement. You get the double benefit of 401(k) contributions being tax-deferred and taking advantage of your employer’s matching contributions.
See where you stand. Learn about the Average 401(k) Balance by Age.
Smart Tip:
Personal finance experts agree that you should contribute to a 401(k) plan to get your employer’s match. The match acts as free money for your retirement savings account, which can grow tax-deferred until you retire.
Retirement savings is a personal finance asset. Increasing your retirement savings by making contributions and having your employer match them will accelerate your net worth growth.
6. Start Investing
Beyond saving for retirement, it is a smart money move always to put your money to work. Investing allows you to grow wealth while you sleep and deploys capital to meet your long-term investing goals. Investing is a wealth-creating opportunity.
Investing in stocks, bonds, high-yielding savings accounts, and real estate can increase your net worth. Because these are considered assets, they further your financial health and simultaneously increase your net worth.
Take the Next Step:
Acorns Website
Acorns Investing App
Smart Money Rating: 5/5
Intro Offer: $20 Bonus Investment
Best For: Beginner Investors
Annual Fee: N/A
7. Increase Your Income
Increasing your income alone will not increase your net worth.
If you have followed the above steps to eliminate your debts, build your savings fund, and start investing, transitioning to focusing on increasing your income can help you accelerate your net worth.
- Start a New Business: Starting a side business can be an excellent way to increase your cash flow and net worth. Increasing your number of income streams and building a passive income (or active income) stream will help you reach your financial goals fast.
- Get a New Job: One of the fastest ways to increase your income is to get a new job. Of course, this is not a small matter and can cause massive personal disruption. Make sure you think long and hard about getting a new job. New jobs can be a terrific opportunity, but ensure it fits into your long-term career objectives. (Read about how to become a freelancer.)
- Ask For a Promotion: If you feel undervalued and underpaid at your job, you can always position yourself for a promotion (and a raise to go along with that promotion). If you like where you work, this can be a great way to increase your income.
Take the Next Step:
on Upwork’s Website
Upwork
Smart Money Rating: 5/5
Best For: Finding Remote and Freelance Work
Success: Freelancers earned $2.3B on Upwork in 2020
Smart Summary
Increasing your net worth is a byproduct of making smart money decisions. If you lower your liabilities and grow your assets, a high net worth will follow. While every financial situation is different, figuring out where you are on your financial journey will help you understand what financial goal to tackle first. By accomplishing one financial task at a time, you can build a solid base and launch your net worth over time.
(1) Federal Student Aid. Federal Student Loan Portfolio. Last Assessed February 21, 2025.
