What Is Net Worth?
Net worth is everything you own minus everything you owe. Learn how to calculate your net worth, average net worth by age, and how to grow it.
Definition
Net worth is the simplest measure of your financial health: it is the total value of everything you own (assets) minus everything you owe (liabilities). Assets include cash, investments, retirement accounts, real estate, and personal property. Liabilities include mortgages, student loans, credit card debt, car loans, and any other debts.
A positive net worth means your assets exceed your debts. A negative net worth (common among young adults with student loans) means your debts exceed your assets. Over time, the goal is to grow your net worth by increasing assets (saving and investing) and reducing liabilities (paying off debt).
Net worth is a more useful measure of financial health than income alone. A doctor earning $300,000 per year with $500,000 in student debt and a lavish lifestyle might have a lower net worth than a teacher earning $60,000 who has been consistently saving and investing for 20 years.
Real-World Example
You own a home worth $350,000, have $100,000 in retirement accounts, $30,000 in savings, and a car worth $20,000. Your total assets are $500,000. You owe $250,000 on your mortgage, $15,000 on your car loan, and $5,000 in credit card debt. Your total liabilities are $270,000. Your net worth is $500,000 - $270,000 = $230,000.
Why It Matters
Tracking your net worth over time is the best way to measure financial progress. Income tells you how fast water flows in; net worth tells you how much is in the bucket. Many people earn high incomes but spend it all, ending up with low net worth. Others earn modest incomes but build significant wealth through consistent saving, investing, and debt avoidance. Calculating your net worth at least once a year gives you a clear picture of where you stand.
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Frequently Asked Questions
What is a good net worth?
It depends on your age. The average American household net worth is about $750,000, but the median is much lower at about $190,000. A common benchmark: your net worth should be roughly (your age x annual income) / 10. At 40 earning $80,000, target about $320,000.
Does my home count in my net worth?
Yes, your home's current market value is an asset, and your mortgage balance is a liability. The difference (your home equity) contributes to your net worth. However, some people prefer to calculate net worth excluding their primary residence to focus on investable assets.
How do I increase my net worth?
There are only three levers: earn more, spend less, or invest more wisely. Paying off high-interest debt effectively increases net worth. Maxing out tax-advantaged retirement accounts accelerates wealth building through compound growth.
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