For anyone entering into finance conversations, this term is going to pop up frequently. On the surface it is a very simple concept: net worth is how much the things you own are worth after you subtract all your debt. In reality, this isn’t the best metric for knowing where you stand in accordance with your goals, but it’s a good place to start.

For many people in the U.S. their primary residence is the largest part of their net worth. This is why you will frequently hear people stress that owning a home is the best thing you can do with your money and that it should be a goal for everyone. I am on that side of the argument, as owning a home has been my greatest springboard for building toward the future I want for my family, but there are very valid against buying in the current market.

Statistics say that around 20-25% of the average U.S. Household’s net worth is tied to its primary residence, but 50% -60% is the median. That’s a pretty big number considering that many people don’t put nearly enough into any kind of investments at all.

What else is generally included in “Net Worth”? Usually cash, bonds, investments, and investment property, but rarely a person’s car, and occasionally rare items like jewelry and artwork, but usually only if those items are insured. Personally, I never add my cars to the count, and I only track my home value for my own knowledge purposes; I don’t usually add it mentally to my net worth.

There are many ways to track these things, but I was a long time fan of Personal Capital. They were bought several years ago by Empower, which I will link here. There is no referral bonus, or reason to use them, but they do some good data correlation. This is one of those sites where you have to log into all of your bank accounts and investment accounts to utilize it, or you can manually add and update all your stuff yourself. I feel that the security in place for these tools is adequate, but nothing is without risk.

Anyway, the point is this: in our previous articles, you have hopefully set some goals for yourself regarding your savings rate and investments. Using a tool or a personal spreadsheet to track your progress is a great motivator. It is also very important to keep stomping out your debt at the same time.

My net worth is rapidly approaching a number that I’ve wanted to hit my entire life. The magic number that every kid dreams of seeing, but here’s the rub: Is it really a true number if my home value is included? Is it accurate if I don’t subtract the debt first? Like most things in life, the answer is whatever motivates you to continue pursuing your goals. If you want to say you’re a millionaire because you have $50,000 in a savings account and a $950,000 home value, but owe $800,000 on your mortgage…I guess you could say it, and proudly do so if it motivates you to continue saving, investing, and clearing out your debt, but that is a $200,000 net worth on $1,000,000 in assets. Not the same thing.

It is also important to understand Liquid Net Worth, which is money you are able to touch easily. Home Equity, 401ks, and other retirement vehicles are not easily accessed to buy groceries or pay an electric bill. I would generally recommend only including cash and taxable brokerage accounts in your liquid net worth.

Anything I missed that you think should be included in net worth? Drop a comment.

~~Miniwing~~
Stoic, Investor, Parent

Term	Definition
Net Worth	The total value of everything you own minus everything you owe. It is the big-picture snapshot of your entire financial position.
Liquid Net Worth	The cash or cash-equivalent assets you can access immediately (usually within a few days) without losing value or taking a huge tax/penalty hit, minus your short-term debts. This represents money you can actually spend today in an emergency.
Illiquid Net Worth	The portion of your net worth tied up in physical assets, property, or locked financial accounts that cannot be converted to cash quickly without significant time, effort, fees, or taxes.

As usually all definitions are added to the Glossary.