What is It?

• Net worth is your assets minus your liabilities. Assets are things you own that have value: your home, your car, savings, retirement accounts, the value of stocks, bonds and investment accounts and any cash or other valuables. Liabilities are debts you owe, such as loans, your mortgage, credit card debt, medical bills and any other money owed to anyone. Subtract the sum of your liabilities from the sum of your assets and the result is your net worth.
  
  

What Does It Mean?

• When you subtract your liabilities from your assets, you hope to come up with a positive number. Banks and other lenders like to see a positive net worth when they consider your application for a loan. But sometimes the number is a negative one --- you owe more than your own. If this is the case, consider what you can do to turn the negative number into a positive one. Paying off debt is a good first step, perhaps by cutting back on expenses or taking a second job and putting all those payments toward the debt, or by renegotiating or consolidating the debt. If you have an asset, such as a car, on which you owe a lot of money, you could consider selling the car to pay off the debt and buying a less expensive model.
  
  

A Healthy Net Worth

• "The Millionaire Next Door" suggests that a healthy net worth is your age times your pre-tax income, divided by 10. So, a 30-year-old who earns $36,000 a year should aim for a net worth of around $108,000. You can also look at the types of assets and liabilities that impact your net worth. For example, if most of your debt is credit card debt, you should focus on paying off this debt. If you have a lot of assets in real estate but very little in retirement funds, you might want to sell some of the real estate and put the money into retirement funds. If you have a lot of things such as cars and collections but no emergency fund, you might need to sell something and set the money aside for emergencies.
  
  

Figuring Your Net Worth

• You can download worksheets to use in computing your net worth. Gather check stubs, loan papers and bank and credit card statements. Use recent tax assessments and resources such as Kelly Blue Book to figure the value of real estate and automobiles. Recent appraisals will provide the most accurate figures for jewelry and collectibles, but you can estimate worth by studying similar items on online auction sites. Loan paperwork and credit card statements should reveal your liabilities.