When people talk about financial health, salary is the most common reference point. But salary measures a flow (what you earn each month), not an actual position. For most personal finance experts, net worth is a far more accurate indicator of your true accumulated financial situation.
What net worth is
It's the difference between everything you own (assets) and everything you owe (liabilities), at a specific point in time:
Net worth = Total assets − Total debts
A positive, growing net worth means your financial situation is improving over time; a negative or shrinking net worth means the opposite, regardless of how much you earn each month.
What counts as assets
- Balances in bank accounts and available cash.
- Investments (funds, stocks, pension plans, deposits).
- Real estate, valued at estimated market price, not the original purchase price.
- Vehicles and other items of significant value, though their relative weight is usually smaller and they tend to depreciate over time.
What counts as liabilities (debts)
- Outstanding mortgage principal.
- Outstanding personal loans.
- Outstanding balance on credit cards or revolving credit.
- Any other formal debt still to be repaid.
Why it's a better indicator than salary
Two people with the same salary can have completely opposite financial situations: one might have a growing net worth thanks to consistent saving, while the other might have a negative net worth from accumulated consumer debt, despite earning exactly the same each month. Salary measures your ability to generate income; net worth measures the accumulated result of the financial decisions made over time.
Why your primary home deserves separate treatment
Although it technically counts as an asset, many financial planners recommend also calculating an "investable net worth" (excluding your primary home, which doesn't generate income and can't be sold without needing somewhere else to live), as a more realistic indicator of your actual financial capacity for goals such as retirement.
How to track it over time
Calculating your net worth just once has limited value; its real value lies in repeating the calculation periodically (for example, every quarter or every year) and watching the trend, which is what actually tells you whether your financial decisions are working over time.
Project the growth of your invested portion
Our compound interest calculator lets you project how the portion of your net worth allocated to savings and investment would evolve, as a useful complement to periodically calculating your total net worth.