The Shackless of Debt

What is Net Worth? Why Does it Matter?

man holding and counting dollar bills whilst sat in his car

Understanding your personal net worth is a fundamental aspect of financial literacy.

There is a common misconception that net worth tracking is only for celebrities and rich people. I used to believe that as well.

This blog post will define what net worth is. It will speak on the difference between assets and liabilities. Moreover, it will show you how to calculate your net worth and provide methods you can use to increase it.

Disclaimer: This post contains affiliate links to products. I may receive a commission for purchases made through these links. But this does not impact my reviews and comparisons. I only suggest products I’ve used and love.

Net Worth Meaning

Net worth is the figure that is left after the value of your assets is subtracted from the value of your liabilities.

It provides a snapshot of your financial health and provides vital information about the overall state of your finances. 

You can increase it by accumulating assets. This method is employed by wealthy people in order to continually increase their net worth.

In the book, Rich Dad Poor Dad, Robert Kiyosaki said that the rich are always focused on acquiring more assets. Whereas everyone else is focused on acquiring liabilities. 

Assets Vs Liabilities

Assets are anything that you own that can be utilized to value. You should aim to maximise your assets at all times. 

Assets come in a variety of forms. Here are some examples:

  • Business properties
  • Personal properties
  • Boats and Cars
  • Art and jewelry
  • Bonds, Stocks and Pensions 
  • Royalties from Intellectual Property

Liabilities are defined as the debts you owe to a person or business. 

Examples of Liabilities include:

  • Car loans
  • Student loans
  • Credit card balances, if not paid in full each month.
  • Mortgages
  • Secured personal loans.
  • Unsecured personal loans.
  • Payday loans.

Net Worth and Materialism

Material possessions are not an indicator of net worth. A good example of this is the story of Ronal Read, who was a janitor. Ronald died aged 92 and he left behind a $8 million fortune

He had quietly accumulated wealth for over 40 years. He did this by investing in stocks. His loved ones were shocked he had so much money and they described his existence as “humbe”. 

To the outside world, he looked like any other person. He drove second hand cars and consistently lived below his means. 

Ronald Read demonstrated that you don’t have to be flashy, drive the latest car or live in the biggest house in order for his worth to be high.

In fact, people who place a high value on material possessions experience more negative emotions and are less satisfied with their lives.

Net Worth Formula

To calculate your it, use the following formula: 

Assets – Liabilities = Net Worth

Example Calculation:

Tim and Claire have a house that is worth £200,000. They have £15,000 in cash savings, alongside £15,000 in investments. Both their pensions combined are worth £20,000.

However, their mortgage has £80,000 left on it. Moreover, they have £5000 worth of credit card debt and they recently took out a £10,000 loan to renovate their home. They also have combined student loan debt of £27,000. Their total net worth is £122,000


House Value £200,000

Savings of £15,000

Pension of £20,000

Investments of £10,000

Total Assets = £245,000


Mortgage: £80,000

Credit cards: £5,000

Personal Loan: £10,000

Student Loans: £27,000

Total Liabilities = £123,000

Net Worth = £122,000

How to Improve Your Net Worth

There are several things you can do to increase it.

Firstly, you should pay off all debts. There are several methods and ways to become debt-free.

Secondly, you can increase your cash flow. You can do this by starting a side hustle, asking for a pay rise or selling items online.  

Thirdly, you should save money consistently. This article highlights 8 simple ways you can start saving money.

Fourth, you should regularly invest in stocks and shares. Some people are hesitant to Invest in the stock market because of the risks involved. But the stock market has consistently had higher returns than regular savings accounts.

Lastly, focus on consistently acquiring assets that appreciate in value. 


Calculating and understanding your net worth is a vital element of personal finance. There are several, practical ways in which it can be increased. The key to having a higher number is by limiting liabilities and consistently acquiring assets.

Do you calculate your net worth? Do you feel it’s an important aspect of your personal finance? Let me know!

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