If you're trying to get a sense of where you stand financially, your net worth is a great place to start.
While not a be-all, end-all indicator, your net worth can have some value in measuring your financial health, as it shows you how much wealth you have.
What's more, if you track it over time, you can make sure your finances are trending in the right direction.
Let's take a look at what net worth is, how to calculate it, and how your net worth compares to people in similar circumstances.
What is net worth?
Net worth is the difference between what you own (cash, stock, and other items) and what you owe (your debts and other liabilities). Another way to describe net worth is the excess of your assets over your liabilities. Your net worth can be positive or negative.
Asset
An asset is something you own that has value and that can provide you with some economic benefit.
For example, a savings or checking account is an asset that provides you with both interest and the option to spend. With stock, you own the right to your share of the company's future dividends.
A liability, on the other hand, is the opposite of an asset. It represents a future sacrifice of economic benefit. Debts like credit card balances, car loans, mortgages, and student loans count as liabilities.
The more your assets exceed your liabilities, the greater your net worth. However, if your liabilities greatly exceed your assets, you may be in some financial trouble.
Calculating your net worth
Calculating your net worth involves adding up all your assets, then all your liabilities, and finding the difference between the two. It's that simple.
When you calculate your net worth, you can either write the numbers out by hand, use sophisticated software, or choose an in-between method. Some people prefer a more manual approach, while others like a computer to automate things for them.
You can also use our net worth calculator to see where you stand. Some examples of common assets and liabilities are listed in the table below.
Common Assets | Common Liabilities |
|---|---|
Estimated home value | Home mortgage principal |
Investment portfolio (stocks and bonds) | Student loan debt |
Savings accounts or CDs | Credit card debt |
Home contents | Personal loan balances |
Jewelry | Tax debt |
Owned vehicles | Car loans |
These are just some of the many assets and liabilities that exist. Depending on your life circumstances, you may have more or fewer assets and liabilities than someone in a similar scenario.
Compare your net worth
The Federal Reserve's 2022 Survey of Consumer Finance measures net worth across a few key dimensions: age, ethnicity, and education level. Check out the tables below to see how different net worth numbers are associated with these variables.
Age Range | Average Net Worth | Median Net Worth |
|---|---|---|
Under 35 | $183,380 | $39,040 |
35-44 | $548,070 | $136,300 |
45-54 | $971,270 | $246,700 |
55-64 | $1,564,070 | $364,270 |
65-74 | $1,780,720 | $410,000 |
75+ | $1,620,100 | $334,700 |
When you look at net worth by age, there are a few key things to know.
First, net worth typically goes up over time, so it is normal for young people to have a lower net worth.
Second, average net worth often appears artificially high because the tremendous wealth concentration in the top few percent of households skews the averages upwards.
Median net worth values tend to represent household wealth better by avoiding this problem. Remember, the median is the value at which half of households have more and half have less.
For those aged 45-54, for example, you might feel behind if your net worth is $300,000 and you see the average as $971,270. In reality, your $300,000 net worth is in the top half of households since it's above the median of $246,700.
Again, if your net worth falls below the average or median, don't worry. This is only one measure of household value, and there are several ways to improve over time.
Race | Average Net Worth | Median Net Worth |
|---|---|---|
Caucasian (white) | $1,361,810 | $284,310 |
Black | $211,600 | $44,100 |
Hispanic/Latino | $227,540 | $62,120 |
Other | $844,130 | $132,200 |
As you'll note, the disparity in average net worth and median net worth across ethnicities is vast.
This is due to the ongoing effects of generational poverty and systemic issues that have hindered certain groups throughout our nation's history.
Education Level | Average Net Worth | Median Net Worth |
|---|---|---|
Less than a high school diploma | $175,630 | $38,050 |
High school diploma | $413,280 | $107,000 |
Some college | $540,870 | $137,040 |
College degree | $1,992,940 | $464,400 |
Education continues to play a significant role in average and median net worth. Having a college education is clearly a major factor impacting the ability to accumulate and conserve wealth over time.
Part of the reason a college degree is so valuable is that it has numerous follow-on effects beyond just the piece of paper you receive at graduation.
A college education often helps you build strong networks, make valuable professional connections, and learn key life lessons that go beyond classroom material.
The bottom line on calculating your net worth
Your net worth tends to be a better indicator of financial stability than your income alone, as it describes not what you earn but how much you've managed to keep.
One way to consistently grow your money is to invest it in the stock market at regular intervals -- this can help your net worth grow even without active effort on your part.
Here at The Motley Fool, we believe long-term, buy-and-hold investing is an effective way to build generational wealth. As with any long-term endeavor, you'll want to get started as soon as possible to take advantage of compound interest and sustainably grow your nest egg.
Check out our resource library today to learn more.
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