LESSON NO. 6

“In Lesson 5, we looked at risk vs. returns. Now let’s ground that in a number: your net worth. Net worth is what’s left when you subtract liabilities (what you owe) from assets (what you own) — and it’s the single number that best answers ‘how am I actually doing, financially?'”

The Simple Formula

Net Worth = Total Assets − Total Liabilities

That’s it. Everything else in this lesson is just about filling in those two numbers accurately.

Step 1: Add Up Your Assets

List everything you own that has real monetary value:

– Cash in hand and bank account balances
– Fixed deposits, recurring deposits
– Mutual funds, stocks, and other investments (at current value, not purchase price)
– EPF/PPF balances
– Gold (jewellery, coins, or digital gold)
– Real estate (at current fair market value, not what you originally paid)
– Vehicle (at current resale value, not showroom price)

Step 2: Add Up Your Liabilities

List everything you currently owe:

– Home loan outstanding balance
– Car loan or personal loan outstanding balance
– Credit card outstanding balance
– Any other borrowed money you haven’t repaid yet

Step 3: Subtract

Total assets minus total liabilities gives you your net worth. If the number is positive, you own more than you owe. If it’s negative, you owe more than you own — which is common early in life (student loans, a fresh home loan) and not automatically a red flag on its own.

A Worked Example

Say you have:

– ₹1,50,000 in savings and fixed deposits
– ₹3,00,000 in mutual funds
– ₹2,00,000 in EPF
– A car worth ₹4,00,000 at resale value

Total Assets = ₹10,50,000

And you owe:

– ₹6,00,000 remaining on a car loan
– ₹50,000 on a credit card

Total Liabilities = ₹6,50,000

Net Worth = ₹10,50,000 − ₹6,50,000 = ₹4,00,000

Why This Number Matters More Than Your Salary

A high salary with high debt and low savings can produce a lower net worth than a modest salary with consistent saving habits. Net worth is a better single indicator of financial health than income alone, because it accounts for what you’ve actually kept and built over time, not just what flows through your hands each month.

Tracking it isn’t a one-time exercise — recalculating your net worth every few months shows you the direction you’re moving in, which matters more than the exact number on any single day.

What’s Next

You now have the vocabulary and the first real calculation under your belt. Lesson 7 builds on this directly: **Needs vs Wants — The First Skill of Financial Discipline**, which is about controlling the inputs (spending) that shape whether your net worth moves up or down each month.

*This is Lesson 6 of 8 in the Finance Foundations series — a conceptual primer for readers starting from zero. For practical, step-by-step guidance on saving and budgeting, see our Money Basics category.*

— DhanMaitri Desk
Simple financial wisdom for every Indian