Net worth

Net worth is a stock, not a flow. It answers one question: if every asset were sold today and every debt cleared, what would be left? Add cash, savings, retirement accounts, the market value of a home and a car, and any money owed to you. Subtract mortgages, student loans, card balances and anything else outstanding. The difference is the number.

The point of tracking it is direction, not level. One reading says little, because a large house with a large mortgage behind it can produce the same figure as a modest home owned outright. A reading every quarter shows whether assets are growing faster than debts, which is what a budget is actually trying to change. It also catches progress that a bank balance hides: a month where the cash balance fell but the mortgage fell further was a good month. Growth in the invested part is compounding doing its work over years, which the compound interest calculator puts numbers on.

Two errors are common. The first is counting an asset at what it cost rather than what it would sell for, which quietly inflates cars, furniture and anything else that depreciates. The second is reading a negative figure as failure. A recent graduate with student debt and few assets starts below zero by arithmetic alone, and the useful question is whether the number is rising, not whether it has crossed zero yet.