What Should Your Net Worth Be at Age 40?

Do you know what your net worth is? If you've calculated your net worth, you might be wondering how you compare to other Americans around the same age. With that in mind, here's a quick rundown of how you can calculate your net worth, what the average 40-year-old is worth, and how to tell if your net worth is where it should be.

What exactly is your net worth?

Net worth is defined as the sum of a person or household's assets minus their liabilities. In other words, if you were to sell everything you own and pay off any debts you have, your net worth would theoretically be the amount of money you would end up with.

So, the first step in calculating your net worth is to add up your assets. This can include your home, your cars, investment accounts (standard brokerage and retirement), collectibles, jewelry, and more. You don't need to add up every asset you own, just the large ones. And for things like the value of your home furnishings, it's fine to use one number to estimate rather than adding everything individually.

Next, add your debts together. Include your mortgage, car loan(s), as well as any credit cards or personal loan debt. Subtracting the two numbers will show your net worth.

As a simplified example, let's say you own a home worth $400,000, a car worth $35,000, and the value of your furnishings and everything else in your home is collectively $65,000. This gives you an asset value of $500,000. We'll say you have a $250,000 mortgage and owe $10,000 on a personal loan. Subtracting $260,000 in debts from $500,000 in assets gives a net worth of $240,000.

The average American's net worth at 40

Of course, the average American's net worth depends on what particular study you're looking at and what the exact methodology they use is.

Having said that, according to the most recent Survey of Consumer Finances, which is conducted every three years by the Federal Reserve, the median net worth of a household in the 35-44 age group is $91,300. However, the average net worth in this age group is $436,200.

We won't get too deep into a statistics lesson, but the general takeaway is that half of households in this age range have a net worth less than $91,200 and half have a net worth greater than this amount. When an average is significantly higher than the median, like it is here, it implies there is a small number of households with extremely high net worth that are skewing the numbers.

Also keep in mind that net worth includes asset values minus any debts. Someone with the median $91,200 net worth could have $91,200 in the bank, rent their home, and have no debt whatsoever. And someone with the exact same net worth could have $2 million in assets but owe more than $1.9 million in mortgage and other debt. In other words, net worth doesn't tell the whole story about a household's financial situation.

What should your net worth be at 40?

The median and average can certainly be smart ways to gauge your progress relative to others in your age group, but there's no single number that every 40-year-old "should" have. There are a lot of variables that play into the equation, such as your income, marital status, number of children, and where you live that can make it easier or more difficult to build net worth.

It's also important to realize that not all debt is the same. For example, if you have $300,000 in assets and a $200,000 mortgage at 3% interest, you are in a very different financial situation than someone with $300,000 in assets and $200,000 in various debts at an average interest rate of 10% or more.

The short answer is if you're prioritizing saving for both retirement and emergencies, keeping your debts at a responsible level, and generally living within your means, your net worth should continue to move in the right direction over time.