How do you measure your financial health? It’s not just about how much you earn. A much clearer picture comes from your net worth. Think of it as a personal balance sheet that gives you a snapshot of where you stand financially at a single point in time. It's the bottom-line number that tells you what you truly own.

This single number provides a powerful look at your financial progress. Are you building wealth or falling into debt? Tracking your net worth over time is one of the best ways to know if your financial habits are moving you in the right direction. It strips away the noise of day-to-day income and expenses to show you the big picture.

Calculating your net worth is straightforward. It all comes down to a simple formula that balances what you have against what you owe.

Let's quickly define those two terms:

• Assets are all the things you own that have monetary value. This includes cash in the bank, investments, your car, and your home.
• Liabilities are your debts—everything you owe to others. This includes credit card balances, student loans, a car loan, or a mortgage.

When your assets are greater than your liabilities, you have a positive net worth. If your liabilities are greater than your assets, you have a negative net worth. It's common for people just starting out, especially with student loans, to have a negative net worth. The goal is to grow the asset side and shrink the liability side over time.

Think of it like a seesaw. On one side, you have the weight of your assets. On the other, you have the weight of your liabilities. The difference between them determines which way the seesaw tilts.

Ready to check your understanding?

Understanding your net worth is the first step toward taking control of your financial future. It provides a baseline from which you can set goals and measure your progress.