Welcome to Money Basics, Yahoo Finance’s new personal finance series offering quick explanations for some of the most important terms involving your money.
When you hear that people like JPMorgan CEO Jamie Dimon are “worth millions,” do you wonder how much you’re worth? It’s a pretty simple formula to find out. Your net worth is the value of everything you own minus everything you owe.
A simple formula
First, add up everything you owe. These are called liabilities. Liabilities include things like mortgages, car loans, credit cards, student loans, medical bills and back taxes.
Next add up everything you own. These are called assets. Assets include things like your investments, life insurance, fine jewelry and the market value of a home or a car.
So, now you’ve got two numbers. Subtract your liabilities from your assets, and that gives you your net worth. A positive number means you own more than you owe—and that’s a great thing!
A negative number means you owe more than you own, but don’t panic. You’re not alone. According to the Federal Reserve Bank of New York, one in seven households has either zero or negative net worth.
What it means
It could mean you need to work on your budgeting or cut back on expenses. It could also mean you’re young and haven’t had much time since graduating college to really tackle your student loans. Either way, once you know your net worth, you can really focus on improving it.
It’s good to calculate your net worth every once in a while. Every time you check your net worth your goal should be for it to be higher than it was the last time you checked. That’s an indicator of good financial health. Knowing your net worth is a good first step to taking control of your money.