What it actually is
Your net worth is what you own minus what you owe. That is the whole definition. Add up the money in your accounts, the value of your flat and whatever you have invested, subtract the mortgage and the car loan, and what remains is your net worth.
The number can come out negative, and that does not mean you are doing it wrong. Someone who has just signed a mortgage runs a negative net worth for years and is on perfectly good track. What matters is not this month’s figure but the direction it moves in.
It is the number your current account cannot give you. The bank balance tells you how the month is going; net worth tells you how the decade is going. Different questions, and you need both.
How to work it out
One subtraction and two lists. The first list is what you own. The second is what you owe. No formulas involved.
List 1: what you own
Current and savings accounts, cash, funds and shares, pensions, the market value of your home if you own it, the car if you would sell it without drama, and money owed to you that you will genuinely collect.
For each one, write down today’s value, not what you paid. A car that cost £22,000 and would sell for £9,000 is worth £9,000 on this list.
List 2: what you owe
The outstanding capital on the mortgage —not the monthly payment, not the total with interest: what is left to repay— plus personal loans, deferred card balances, instalment plans and any money you have borrowed from someone.
The subtraction
List 1 total minus list 2 total. That is your net worth today. Write it down with the date and forget about it for three months.
Two worked examples
With a mortgage
Someone aged 34, four years into a mortgage:
What they own: £4,200 in the current account, £11,000 in savings, £18,500 in an index fund, £9,000 for the car and £205,000 for the flat. Total: £247,700.
What they owe: £168,400 of outstanding mortgage capital and £3,100 on a car loan. Total: £171,500.
Net worth: £76,200. A year ago it was £61,800. It has gone up £14,400 without anything dramatic happening: partly savings, partly mortgage capital repaid, partly the fund. That is the useful information.
Notice something: their current account holds £4,200. Looking only at that, you would say they are scraping by. Net worth tells a different story.
Renting
Someone aged 29 who rents and has no car. They hold £2,600 in the current account, £7,400 in savings and £6,200 in a fund. They owe £1,900 on a laptop bought in instalments. Net worth: £14,300.
Comparing those two figures —£76,200 and £14,300— is useless. One includes a flat the other person has not bought; the second has all its money available tomorrow and the first does not. Two different lives measuring different things, and both can be going well.
What is comparable is each one against itself. The 29-year-old went from £9,100 to £14,300 in a year: £5,200 more, and because all of it is liquid, that figure matches what they managed to save. In the first case it does not: most of the growth comes from mortgage capital repaid, which is saving too, but saving you cannot spend.
Net worth is not liquidity
This is the distinction between a useful number and a decorative one. Two people with identical net worth can be in opposite situations depending on where that net worth sits.
If £71,000 of your £76,200 is inside a flat, your ability to react to something unexpected is the £5,200 left. Selling a flat takes months. Pulling money out of a fund takes days. Out of a savings account, a minute.
So it is worth writing a second, much smaller number next to the big one: how much of what you own is available this week. That is the one that tells you whether you can sleep, and it is usually the one people find is far too low after years of feeling “comfortable on paper”.
The practical rule: the liquid part should cover several months of your usual spending before it makes sense to worry about growing the rest.
Four common mistakes
1. Confusing the payment with the debt
The mortgage on list 2 is the outstanding capital, not the sum of every payment left. Adding future interest counts a cost you have not incurred yet and sinks the number for no reason.
2. Valuing things at what they cost
Cars, phones and furniture lose value. Record them at purchase price and your net worth rises on paper while it falls in reality. And if you would never sell it, leave it out entirely: a wardrobe is not an asset.
3. Counting things you would never sell
The sofa, the television and the bike belong on the list only if you would genuinely put them up for sale. Adding them “just in case” inflates the figure with money you will never see, and the problem is not vanity: you end up making decisions against a cushion that does not exist.
4. Comparing it with someone else’s
Net worth depends on age, salary, country, whether you inherited anything and whether you have children. The only comparison that says anything is with yourself a year ago.
How often to check it
Every three months. It is a slow number and checking more often only makes you anxious about swings that mean nothing: a fund down 3 per cent in a week is not information, it is noise.
Pick four fixed dates a year and stick to them. The first of January, April, July and October works well because it lines up with almost everything else’s quarter end. The date itself does not matter; keeping it the same does — move it whenever markets look good and your history stops being comparable.
Record every measurement with its date and never delete the earlier ones. Net worth without a history is a loose number; with two years of readings behind it, it is the closest thing to a dashboard you will have for your finances.
And when the figure drops —some quarter it will— resist the urge to stop measuring. The bad quarters are precisely the ones that explain the rest.
What to do with the number
First, check you have a buffer. Before looking at whether net worth is rising, make sure part of what you own is available tomorrow morning. That is an emergency fund, and without one a broken boiler forces you to sell something in a hurry.
Second, look at the trend. If net worth grows quarter after quarter, your system works even when a month goes badly. If it has been flat for a year, the problem is not one particular expense: it is how much comes in or goes out routinely, and you see that by tracking spending, not by staring at net worth.
Third, let time do the work. The invested part grows on its own if you leave it alone; the compound interest calculator gives you a sense of the effect.
In Sumant this is kept manually: you record each item with its value and the app does the subtraction and keeps the history. There are no live prices and no bank connection, so you update the values yourself when it is time. For a number you look at four times a year, that is enough.