Your Net Worth: What It Is and Isn’t Telling You

budget investing

Discussing net worth is a favorite topic of many in the financial world, and for good reason. It’s an important indicator of your overall financial well-being. Net worth follows a simple formula: Your total assets (what you own) minus your total liabilities (what you owe). 

As such, your net worth could look something like this:

Assets (What You Own): 

Value of home: $250,000
Cash in bank account: $25,000
Investments: $150,000
Cars: $20,000

Liabilities (What You Owe):

Mortgage debt: $150,000

The total assets in this scenario are worth $445,000, and the total liabilities are $150,000. $445,000 minus $150,000 equals a net worth of $295,000.

But what does our net worth tell us? And more importantly, what does it leave out? 

What does your net worth tell you?

1. Your net worth is an indicator of your overall financial health.

Tracking your net worth provides an easy way to examine your overall financial health. A larger or positive net worth is usually a sign of consistently smart financial decisions. A negative net worth indicates a need to reduce debt and spending. Over time, your goal should be to greatly reduce or eliminate all liabilities and increase your assets.

2. Your net worth helps you plan long-term and short-term goals.

In some ways, knowing your net worth is like a travel plan. You need to know where you are to know where you should go. For example, if you have a negative net worth, is going into further debt to buy a home likely to help your situation? Probably not. 

On the flip side, if you have an emergency fund, plenty of cash on hand, and no other debt, then buying a house could be the right move.

3. Your net worth helps you measure progress over time.

Last summer, I decided to run in my first 5k. I am not a natural runner, so I started by running one minute and walking one minute. Over time, my running intervals became longer, while my walking intervals shortened. Eventually, I could run the entire 5k. Whenever I became winded, I would remember that it wasn’t so long ago that I couldn’t even run a mile.

You may look at your net worth now and think you’re behind. But if you’ve started taking steps toward financial health, take a look back and see just how far you’ve come.

What your net worth doesn’t tell you: 

1. Your net worth doesn’t measure your generosity.

While keeping track of your net worth is a good thing, it doesn’t track your generosity at all. It only reflects broad, tangible categories. Did you give so a student could go to summer camp? Or do you support missionaries on the field? If so, your net worth doesn’t know.

2. Your net worth doesn’t measure your commitment to God’s mission.

Just as net worth doesn’t indicate your generosity, it also doesn’t indicate your commitment to the advancement of God’s kingdom. Your net worth doesn’t track how much you serve at your church, how often you go on mission trips, or how many times you proclaim the gospel.

3. Your net worth doesn’t indicate your standing before God.

There are successful people who have a high net worth and aren’t in a right standing before God. Similarly, there are those who have a low net worth and know Jesus intimately. Your net worth is not a measure of God’s love or favor toward you. Rather, God’s love and favor for us is measured in that while we were still yet sinners, Christ died for us (see Romans 5:8).

An alternative way of thinking: Assets under management.

If you haven’t had a chance, I highly recommend listening to Episode 96 of the More Than Money podcast. In this episode, Art interviews author, blogger, and money coach Bob Lotich. In the episode, Bob presents another way to look at net worth. Just as financial advisors may manage money on behalf of their clients, we too are managers of God’s money. Therefore, our net worth is really an indicator of our assets under management.

This struck a chord with me and changed my perspective on net worth. God has given us assets to manage. Just as in the parable of the talents in Matthew 25:24-30, some are given a little and some are given a lot. The servants who managed well, whether they produced a little or a lot, were rewarded. The servant who hid his talent was not.

Keeping track of your net worth is a useful tool. But remember that it is only a tool. It is a tool that lets you know how much God has given you to manage, and a gauge to evaluate how you can live more generously.

About the author: Jon Matlock serves as a financial planner at American Financial Planning, Inc. in Roanoke, Virginia. He is a CFP® candidate, a professional member of Kingdom Advisors, and a graduate of Southeastern Seminary. Before pursuing financial planning, Jon served overseas with the International Mission Board and also worked in their Church Success Center. In his free time, Jon enjoys serving his church, hiking in the beautiful Roanoke Valley, and spending time with his wife and son.