A household balance sheet is a list of what you own and what you owe on a single day. Net worth is the difference. It is the single most important number in personal finance because every other decision — how much to save, how much to invest, whether to buy a home — moves that number, and the direction of the movement is knowable in advance.
- 01List the standard asset and liability categories of a household.
- 02Compute net worth from a set of accounts.
- 03Distinguish gross from net worth and productive from consumptive assets.
Assets
Group assets into three tiers. Cash and equivalents: checking, savings, money-market funds, Treasury bills. Investments: brokerage accounts, retirement accounts, business equity. Use assets: primary residence, vehicles, personal property. The tiers matter because their liquidity and their volatility differ, and mixing them hides both risks.
Liabilities
Group liabilities by maturity. Short-term: credit-card balances, auto loans nearing payoff. Medium-term: student loans, car loans. Long-term: mortgage. Note the interest rate on each, because the weighted-average cost of your liabilities is the return you are guaranteed by paying them down.
Net worth, honestly
Subtract total liabilities from total assets. Do it once a quarter on the same day of the calendar. The trend line matters more than the absolute number, and the trend line is where the household's operating discipline shows.
- Net worth is the master metric. Everything else feeds it.
- Quarterly cadence, same day of the calendar. The trend is the signal.
- Liquidity tiers and liability maturities are separate concerns; do not blend them.
- Federal Reserve, Survey of Consumer Finances — The reference distribution of household balance sheets in the United States.