How to calculate your net worth (and what the number is actually for)
Net worth is assets minus liabilities, but the useful version counts things most people leave out and ignores things most people wrongly include.
Net worth is the only personal finance number that cannot flatter you. Income says what passed through your hands. Net worth says what stayed.
The arithmetic is trivial — everything you own, minus everything you owe. What makes it useful, or useless, is what you decide to count.
What counts as an asset
Include anything you could realistically convert to money:
- Cash, current and savings accounts
- Fixed and recurring deposits, at current value rather than maturity value
- Mutual funds, stocks, bonds — at today's price, not what you paid
- EPF, PPF and NPS balances
- Property, at a sober resale estimate
- Gold, at market rate less making charges
- Vehicles, at resale value
What counts as a liability
Everything outstanding, at today's balance rather than the original amount:
- Home, car, personal and education loans
- Credit card balances, including anything on EMI conversion
- Money owed to family, which people leave out remarkably often
The two mistakes almost everyone makes
Counting the purchase price instead of the current value. A car bought for ₹12 lakh three years ago is not a ₹12 lakh asset. Using purchase prices produces a comfortable number that tells you nothing.
Counting the asset but forgetting the loan. A flat worth ₹80 lakh with ₹55 lakh outstanding contributes ₹25 lakh, not ₹80 lakh. Both sides have to be entered.
Work out yours
What the number is for
A single net worth figure is close to meaningless. The direction is everything.
- Rising while your income is flat means your savings rate is real.
- Rising only because markets rose means you are not actually saving — you are being carried, and a bad year will show it.
- Falling while your income rises is the important one. It nearly always means lifestyle cost grew faster than pay, usually through EMIs on depreciating things.
Measure it quarterly. Monthly is noise; yearly is too late to correct.
How much should it be?
A common benchmark is that net worth should reach roughly your annual income by 30, three times by 40, and six times by 50. Treat this as a rough orientation, not a target — it ignores where you live, what you started with, and who depends on you.
The more useful question is whether the number is higher than it was last quarter, and whether you know why.
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.