What Is Net Worth?

As Rachel Cruze says in her book Love Your Life, Not Theirs: “Here’s a helpful clue: if your credit score is higher than your bank account balance, you’re headed in the wrong direction!” (pg 71). While this statement certainly does not apply to everyone, if your bank account runs dry every month and you use credit cards cover your butt until the next paycheck, this should be a wakeup call!

One of the best indicators of actual wealth is not how high your credit score is, but rather how much money you actually have. The nerdy money term for this is net worth. There are a lot of ways to calculate your net worth, but for simplicity sake I’ll boil it down to a couple sentences below.

Net worth explained in the simplest form: Take all the money you have SAVED (not the money you MAKE), and subtract the debts you have (anything from car loans, student loans, medical bills, and credit card debt). After that, take your handy iPhone out and plug in your saved amount minus your debts. The calculator will spit out a number, which likely will be negative. Congrats, you have a negative net worth!

For most of us that have followed the “normal” adulting life, things like car payments and high amounts of student loans all seem so normal. Any why wouldn’t they? It seems like everywhere we look, high amounts of debt are deemed totally appropriate and just something “everyone goes through”. However, I challenge you to think about what it is that makes you think it’s normal. Just because your parents, friends and relatives don’t take the time to understand the basics of money, doesn’t mean you have to.