What is Net Worth?
Net worth is a simple but powerful metric: everything you own (assets) minus everything you owe (liabilities). It's the single best snapshot of your overall financial health.
The Formula
What Counts as Assets?
| Asset Type | Examples |
|---|---|
| Cash & Savings | Checking, savings, money market, CDs |
| Investments | Brokerage accounts, stocks, bonds, ETFs |
| Retirement | 401(k), IRA, Roth IRA, pension |
| Property | Home equity, rental property, land |
| Other | Vehicles, valuables, business ownership |
Be Realistic About Values
What Counts as Liabilities?
| Liability Type | Examples |
|---|---|
| Mortgage | Home loan, HELOC |
| Auto Loans | Car loans, RV loans |
| Student Loans | Federal and private student debt |
| Credit Cards | All credit card balances |
| Other | Personal loans, medical debt, back taxes |
Understanding Your Net Worth
Negative Net Worth
If liabilities exceed assets, you have negative net worth. This is common for young adults with student loans. Focus on:
- Pay down high-interest debt aggressively
- Build an emergency fund
- Increase income through raises or side gigs
Building Phase ($0-$100K)
You're building your foundation. This phase requires discipline:
- Continue paying off debt
- Max out employer 401(k) match
- Build 3-6 month emergency fund
- Start investing regularly
Growth Phase ($100K+)
You've built a solid base. Focus on optimization:
- Maximize retirement contributions
- Diversify investments
- Consider tax-advantaged strategies
- Protect wealth with insurance
Net Worth by Age Benchmarks
While everyone's situation differs, here are general guidelines:
| Age | Typical Net Worth | Median |
|---|---|---|
| Under 35 | -$20K to $76K | $13,900 |
| 35-44 | $50K to $250K | $91,300 |
| 45-54 | $150K to $600K | $168,600 |
| 55-64 | $200K to $1.1M | $212,500 |
| 65+ | $200K to $1.2M | $266,400 |
Source: Federal Reserve Survey of Consumer Finances
Don't Compare Too Much
How to Increase Net Worth
- Pay off high-interest debt (credit cards first)
- Increase income through career growth or side hustles
- Reduce expenses and invest the difference
- Invest consistently in low-cost index funds
- Avoid lifestyle inflation as income grows
- Build equity in appreciating assets (home, business)
Frequently Asked Questions
Q: Should I include my car as an asset?
A: Yes, but use its current resale value (check Kelley Blue Book). Cars depreciate, so this value decreases over time.
Q: How often should I calculate net worth?
A: Monthly or quarterly is ideal. More frequent checks can cause anxiety over short-term fluctuations.
Q: Should I include my home?
A: Include your home's current market value as an asset, and your mortgage balance as a liability. The difference is your home equity.
Q: What if I have a negative net worth?
A: Don't panic — it's common early in life. Focus on paying down debt and building income. Track progress, not just the number.
Q: Why is net worth important?
A: It measures overall financial health, tracks progress over time, and helps you make informed decisions about spending, saving, and investing.
Net worth is one measure of financial health. It doesn't account for income, cash flow, or life circumstances. Use it as a guide, not the only metric.