Ask most people how they are doing financially and they will answer with their salary. It is the number we know, compare, and negotiate over. It is also close to useless as a measure of financial position, because it describes velocity rather than distance travelled. Two people earning identical salaries can be twenty years apart in financial security.
The number that captures distance travelled is net worth, and it is arithmetically trivial: everything you own minus everything you owe. That is the entire formula. What makes it valuable is not the calculation but the habit of looking at it.
The Calculation
**Step one: list your assets.** Everything you own that has real monetary value.
- Cash: current accounts, savings accounts, cash on hand
- Investments: brokerage accounts, index funds, individual shares, bonds
- Retirement accounts: pensions, workplace schemes, and their equivalents wherever you are
- Property: your home and any other real estate, at current realistic market value
- Vehicles, at what you could actually sell them for today
- Business ownership, at a defensible valuation
- Money genuinely owed to you and likely to be repaid
**Step two: list your liabilities.** Everything you owe.
- Mortgage: outstanding balance, not the original amount
- Car loans and finance agreements
- Credit card balances
- Student loans
- Personal loans, overdrafts, buy-now-pay-later plans
- Tax owed but not yet paid
- Money owed to family
**Step three: subtract.** Assets minus liabilities. That is your net worth.
If the result is negative, you are in the company of a very large proportion of people in their twenties and thirties, particularly anyone with student debt or a recent mortgage. A negative number is a starting position, not a verdict.
Rules That Keep the Number Honest
The calculation is simple; the discipline is in refusing to flatter yourself.
**Value assets at what someone would pay today.** Not what you paid, not what you feel it is worth, not the insured value. For a car, use what comparable models are actually selling for. This single rule prevents most self-deception.
**Do not include depreciating possessions.** Furniture, clothing, electronics, and hobby equipment realistically resell for a fraction of their price and are not part of your financial position. Including them produces a comforting number that tells you nothing.
**Include the whole liability.** People consistently list the property at market value and then understate the mortgage, or forget the credit card that is "going to be paid off anyway."
**Count the home carefully.** Your house appears on both sides of the ledger: market value as an asset, outstanding mortgage as a liability. The difference is your equity. Note that home equity is not spendable without selling or borrowing against it, which is why many people also track a second figure — liquid net worth, excluding property — as a truer measure of flexibility.
Why This Number Beats Income
**It measures what you kept.** Income shows what passed through. Net worth shows what remained after your spending decisions. A rise in income that does not eventually show up in net worth has been fully absorbed by lifestyle, and net worth is the only place that becomes visible.
**It reveals debt for what it is.** Paying down £5,000 of credit card debt raises your net worth by exactly as much as saving £5,000. That equivalence is obvious in the arithmetic and almost never felt emotionally. People will hold savings at 2% interest while carrying card debt at 22%, because the two live in separate mental accounts. Net worth collapses them into one.
**It makes progress visible during unglamorous periods.** Years of steady saving with no dramatic events feel like nothing is happening. A number that moves quarterly shows otherwise.
**It correctly prices purchases.** A car bought with cash converts one asset into a rapidly depreciating one — net worth falls over the following years. Bought on finance, it adds a liability at the same time. Neither framing changes the transaction, but seeing it on a balance sheet is clarifying in a way that a monthly payment figure is not.
Tracking It Sensibly
**Quarterly is the right frequency.** Monthly invites reacting to market noise. Annually is too coarse to catch a drift in the wrong direction. Four times a year is enough to see a trend and rare enough not to become anxious about it.
**Use the same method every time.** Consistency matters far more than precision. A slightly wrong valuation applied identically every quarter still produces an accurate trend line, which is the thing you actually want.
**Record it somewhere permanent.** A single spreadsheet with a row per quarter is sufficient. The value compounds over years — after two or three years the trend tells you more than any single figure ever could.
**Watch the direction, not the level.** The level is heavily determined by age, inheritance, local property prices and career field, none of which are informative about your decisions. The direction, and the rate of change, are yours.
What It Does Not Tell You
Net worth is a snapshot of position, not a complete picture of financial health. It says nothing about whether your assets are accessible in an emergency — someone with substantial home equity and no cash is illiquid regardless of a healthy figure. It says nothing about income stability, insurance cover, or whether your investments suit your timeline. And it says nothing at all about whether your life is well arranged.
It is also worth naming the failure mode: net worth is easy to optimise obsessively, and people do. Treating it as a score to be maximised rather than a diagnostic to be consulted quarterly leads to genuinely poor decisions — under-insuring, under-spending on health, deferring everything worthwhile to a future that is always one more milestone away.
The Bottom Line
Add up what you own at honest current values, subtract everything you owe in full, and write the result down with today's date. Repeat every three months using the same method. It takes twenty minutes the first time and five minutes thereafter. Income tells you the speed; this tells you the distance — and the direction of travel over several years is the most honest financial feedback available.
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