Know Your Net Worth and Cash Flow

Your net worth and cash flow are important barometers of your financial wellness.

Your net worth is your current assets (what you own) minus your current liabilities (what you owe). Among other things, your assets include savings and investments and any property you own. Your liabilities may include housing-related debt, such as a mortgage or home equity loan; car loans; personal loans; and credit card balances.

If you owe more than you own, you have a negative net worth. If you own more than you owe, you have a positive net worth.

Your cash flow is what's left after subtracting your expenses from your income. Knowing your cash flow is key to managing your money well and a prerequisite to creating a household budget.

If your income exceeds your expenses, you have a positive cash flow. A positive cash flow frees up money to pay down debt, and when you pay down debt, you increase your net worth. Also, with a positive cash flow, you may have money available to save and invest, which can also increase your net worth.

If your expenses add up to more than your income, you have a negative cash flow. This can decrease your net worth if you end up using assets like savings and investments to cover expenses you don't have enough income to cover. You may also end up borrowing to cover these expenses, which also decreases your net worth.

Assessing your net worth and cash flow

Any assessment of your net worth should recognize the difference between "good" and "bad" debt. Good debt often includes a mortgage, which can provide you with a place to live - a place that might, in fact, appreciate in value. Student loans are also often considered good debt, because they allow the student to go to college and maybe go on to make a good living. Credit card debt often falls under the category of bad debt, especially if you carry balances on cards from month to month and pay high interest rates on those balances.

A detailed assessment of your net worth should document any significant changes in your net worth in the past.

An assessment of your cash flow should show how much you're spending on necessary expenses, including housing, food and clothing; vs. what you're spending on discretionary expenses, like entertainment, vacation travel or hobbies. Your expenses should also be categorized as either fixed, like a monthly mortgage or rent payment or an insurance premium; or variable, like clothing, health care costs and veterinarian bills - costs that either happen only occasionally or fluctuate from month to month. Separating out variable expenses makes it easier to plan and save for them.

Your net cash flow is the amount of income you have left over after paying for expenses and saving for goals.

For more guidance

Your EY Navigate™ website has a calculator to help you determine your net worth and estimate how it could grow (or shrink) over the next 10 years. On the site, click Learning Center/Other Resources Calculators and then scroll down to find the Net Worth Calculator.

For help with assessing your cash flow and creating a budget, use the Live by a Budget goal on the EY Navigate site. For one-on-one, unbiased, professional guidance, contact your EY financial planner.

The Pension Boards offers EY Financial Planning Services at no cost to actively-contributing, inactive, and annuitized Annuity Plan members. Call the EY Navigate Financial Planner Line at 1.877.927.1047 or visit to learn more.

The article is used with the permission of Ernst & Young LLP.