How to calculate your net worth —and why your net worth actually matters

Lots of numbers you know by heart, like your street address, how much money you make and the year you were born. Here's one more you should learn too: your net worth.

Although it's exact amount changes every day, your net worth serves as snapshot of your financial health at any given moment. Knowing where you stand helps you set financial goals and track your progress towards financial freedom — or at least keeps you from living out your golden years in your kid's garage.

SEE ALSO: Vladimir Putin could be world's richest man with $200 billion net worth, report says

Here's everything you need to know about your net worth:

What is your net worth?

In a nutshell, your net worth is a measure of the current value of all your assets minus your debts.

"Net worth is the most accurate measure of wealth. Wealth is what is left over after all of your bills are paid — and that's precisely what net worth is all about," Investor Junkie explains.

If you have student loan debt , chances are you'll start out with a negative net worth. But as you pay that off, make investments and acquire a house, a car, jewelry, furniture and other property and possessions, your net worth should grow. At least that's the idea.

How do you calculate your net worth?

Start by adding up your assets, including money in your checking account and savings account, the current fair market value of real estate you own, the market value of your car and valuable assets like fancy jewelry and investment art (the framed posters on your wall from college don't count). Then count how much money is in your wallet.

Make sure to calculate the current value of used items, not what you originally paid for them. That fancy flat screen TV you bought 2 years ago for $1000, for example, is only worth what you can sell it for on Craigslist today.

Next, add up the value of all your debts including credit card debt, student loan debt, medical debt and all the money you owe mom and dad. If you aren't sure about your loans pull a copy of your credit report from Annual Credit Report to check your outstanding balances. You can also use an online calculator to make sure you didn't leave anything out.

Now subtract your debts from your assets: That is your current net worth.

Truth time: See how your net worth compares

Once you've got your number, it's fun to see how that compares to others your age. The median net worth of Americans under 35, for example, was just $4,151 if you exclude home equity or $6,676 if you factor it in, according to census data compiled by the Motley Fool. If you're between 35 and 44, that number goes up to $14,226 and $35,000, respectively.

To compare your net worth based on others your age who have the same income, try this calculator from CNN Money, which shows that the median net worth for a 28-year-old with a $35,000 annual income is $8,525.

As long as you're paying off student debt, you may not see positive numbers for a while, but don't be discouraged. Money you put into a company 401(k) grows exponentially over time. And you'll pay off those loans eventually.

Why your net worth matters

Knowing your net worth is important for a lot of reasons, from giving you an accurate picture of how much you actually own (versus how much of your assets the bank owns) to motivating you to spend your money on assets instead of just stuff.

It can also help you set debt repayment goals, see how well your investments are growing over time and give you a better idea of how close you are to financial independence.

Your net worth is a yardstick to measure how close you are to financial freedom.

How can you grow your net worth?

To move the needle on your net worth, you need either to grow your assets, reduce your debt or both.

The easiest way to grow your assets is by setting 15% of your income into a retirement account at work or on your own through an IRA. You can also check out Mic's guide to investing in stocks and funds for the first time.

When it comes to paying off debt, first you need to tame your budget. Try this 5-minute guide to get you started. Over time, you can become debt free and have enough assets that you'll be sitting pretty by the time you retire.

RELATED: Net worths of Trump's Cabinet members

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Net worths of Trump's Cabinet members
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Net worths of Trump's Cabinet members

Ryan Zinke, Secretary of the Interior: $800,000

Before serving in Congress, Zinke, who has an MBA, started Continental Divide International in 2005, a property management and business development consulting company. He later formed a consulting company, On Point Montana, in 2009.

REUTERS/Carlos Barria TPX IMAGES OF THE DAY

Mike Pence, Vice President: $800,000

Pence became an attorney in a private practice after graduating from law school before serving in Congress and then becoming the Governor of Indiana.

(BRENDAN SMIALOWSKI/AFP/Getty Images)

Rick Perry, Secretary of Energy: $2 million 

Former Texas Gov. Rick Perry banks at least $100,000 from speeches and $250,000 from consulting Caterpillar. Additionally, the politician has about 20% of his portfolio invested in in oil-and gas partnerships and energy stocks, according to Forbes.

REUTERS/Carlos Barria

John Kelly, Secretary of Homeland Security: $4 million 

Kelly, who spent over four decades in the military, amassed the majority of his wealth from government pension. 

(Photo by Mario Tama/Getty Images)

James Mattis, Secretary of Defense: $5 million

Like Kelly, the four-star general made most of his money from government pension. He also sits as a director of General Dynamics. 

REUTERS/Ed Jones/Pool

Jeff Sessions: $6 million (Attorney General)

Sessions owns more than 1,500 acres in Alabma that are worth at least $2.5 million. The rest of his fortune is in Vanguard mutual funds and municipal bonds, according to Forbes.

REUTERS/Kevin Lamarque

Tom Price, Secretary of Health and Human Services: $10 million

Price ran an orthopedic clinic in Atlanta for 20 years, then taught orthopedic surgery as an assistant porfessor at his alma mater, Emory.

REUTERS/Carlos Barria

Elaine Chao, Secretary of Transportation: $24 million

The daughter of a shipping magnate owes the buld of her and her husband Mitch McConnell’s wealth to her family. 

REUTERS/Carlos Barria

Ben Carson, Secretary of Housing and Urban Development: $29 million 

The neurosurgeon earned millions from books he penned, media roles and speaking gigs. He also served as a director at Kellogg and Costco, accumulating more than $6 million in stocks. 

REUTERS/Las Vegas Sun/Steve Marcus/File Photo

Andy Puzder, Secretary of Labor: $45 million 

The CEO of CKE Restaurants, which owns Carl’s Jr. and Hardee’s, has earned at least $25 million in salary and bonuses since 2000.

(Photo by Al Seib/Los Angeles Times via Getty Images)

Steven Mnuchin, Secretary of the Treasury: $300 million 

The former Goldman Sachs partner purchased subprime mortgage lender IndyMac for $1.6 billion in 2009 with a group of billionaire investors and sold it for $3.4 billion six years later.

(Photo By Tom Williams/CQ Roll Call)

Rex Tillerson, Secretary of State: $325 million

The former ExxonMobil chairman and CEO accumulated more than 2.6 million shares of company stock in his tenure and hefty pay packages, according to Forbes.

(BRENDAN SMIALOWSKI/AFP/Getty Images)

Betsy DeVos, Secretary of Education: $1.25 billion

The daughter of a shipping magnate owes the bulk of her and her husband Mitch McConnell’s wealth to her family.

(Photo by Samuel Corum/Anadolu Agency/Getty Images)

Wilbur Ross, Secretary of Commerce: $2.5 billion 

Known as the "King of Bankruptcy," the former banker bought bankrupt companies and later selling them for a large profit.

 REUTERS/Carlos Barria
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