Your net worth is a snapshot of your financial health at a specific point in time. It represents the difference between what you own (your assets) and what you owe (your liabilities).
Net Worth = Total Assets - Total Liabilities
Calculating your net worth periodically can help you track your financial progress and make informed decisions about saving, investing, and debt management.
What Your Net Worth Means
Positive Net Worth
A positive net worth means your assets exceed your liabilities. The higher the number, the better your financial position. This typically indicates you're building wealth over time.
Negative Net Worth
A negative net worth means your liabilities exceed your assets. This is common for young adults with student loans or significant debt. It's not necessarily bad if you have a plan to grow your assets and reduce debt over time.
How to Improve Your Net Worth
1. Increase Your Assets
- Save more money in checking, savings, and retirement accounts.
- Invest wisely to grow your wealth through compound returns.
- Increase your income through career advancement, side hustles, or passive income streams.
- Improve your property value through strategic home improvements.
2. Reduce Your Liabilities
- Pay down high-interest debt like credit cards and personal loans.
- Create a debt repayment plan to systematically reduce what you owe.
- Avoid taking on new debt unless it's for appreciating assets.
- Refinance high-interest loans to lower interest rates when possible.
Interpreting Your Results
Net Worth by Age
While everyone's financial journey is different, here are some general guidelines for average net worth by age in the U.S.:
| Age Group | Median Net Worth | Average Net Worth |
|---|---|---|
| Under 35 | $13,900 | $76,300 |
| 35-44 | $91,300 | $436,200 |
| 45-54 | $168,600 | $833,200 |
| 55-64 | $212,500 | $1,175,900 |
| 65-74 | $266,400 | $1,217,700 |
| 75+ | $254,800 | $977,600 |
Source: Federal Reserve Survey of Consumer Finances (2019)
Remember: Trends Matter More Than Numbers
Don't be discouraged if your net worth doesn't match these averages. What's most important is that your net worth is growing over time. Track your progress annually to ensure you're moving in the right direction.
Tips for Accurate Net Worth Calculation
Asset Valuation
- Real Estate: Use current market value, not what you paid. Consider getting a professional appraisal or using online estimators.
- Vehicles: Use the current resale value, not the purchase price. Kelley Blue Book or similar resources can help.
- Personal Property: Be conservative with valuations. Use resale value, not replacement cost.
- Investments: Use current market value and update regularly as values fluctuate.
Liability Accuracy
- Include all debts, even small ones.
- Use current balances from your most recent statements.
- Don't forget about loans from family members or friends.
When to Calculate Your Net Worth
Financial experts recommend calculating your net worth at least annually. Some people prefer to update their numbers quarterly or even monthly to stay on top of their financial progress.
Good times to recalculate include:
- At the beginning of each year
- After paying off a major debt
- After acquiring a significant asset
- Before making major financial decisions
Building Wealth Takes Time
Remember that building wealth is a marathon, not a sprint. Focus on consistent progress, good financial habits, and making informed decisions that align with your long-term goals.