In simple words, its how valuable you are.
To calculate your net worth:
- Add all your assets (cash, jewellery, stocks, bonds, real estate, car, etc.)
- For your house, just count the equity built on the house (how much of principal on the house is paid by you + any increase in value since you bought it. Don't count how much mortg interest you paid on it)
- For your car, take the current Blue book value (don't use what you paid for what you think the car's worth)
- Add all your liabilities (credit card debt, outstanding loans, any other payments or money you owe)
- Definitely count total outstanding mortgage amount in this category.
- Whatever is the result of subtraction of assets-liabilities is your total Net Worth!
How much should be my ideal net worth?
Your total net worth should be your salary multiplied by your household income divided by 10.
So if you are 30 years old and your household earns 200k/year, your total net worth should be:
(200,000 * 30)/10 = 600,000
So when you calculated your net worth above, if the number is less than $600,000 then you are behind!! You should consider saving more and investing more to reduce your liabilities and increase your assets. Try to get appreciable assets vs those that depreciate in value.