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What is net worth? How to calculate, average by age & more

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Some financial advisors call it “weighing the baby.” They’re referring to calculating your net worth regularly, and they believe it’s one of the most important disciplines you can implement to ensure your long-term financial plan is on the right course to reach the goals you’ve set.

If you don’t know what your net worth is today, the chances are excellent that you’re familiar with the term anyway. It’s hard to think of people like Elon Musk, Jeff Bezos, and Warren Buffet without equating them with their net worth:

  • Elon Musk net worth: $235 billion
  • Jeff Bezos net worth: $179 billion
  • Warren Buffet net worth: $113 billion

In fact, people are so obsessed with other people’s net worth that Forbes has a web page called Real Time Billionaires that tracks the net worth of the world’s wealthiest people on a daily basis.

Don’t worry if you haven’t calculated yours in a while or if you’re not even sure how to do it. This simple guide will tell you how to do it, when to do it, and why to do it.

Read on if knowing whether or not you’re on your way to one day becoming financially independent is important to you.

Net worth definition

What does net worth actually mean? Simply put, net worth is the value of everything you own after subtracting everything you owe. It’s not about income, which isn’t even a factor when it comes to calculating your net worth. Instead, it’s about assets — things like savings, investments, real estate property, collectibles, retirement accounts — and debts.

Consider this: If you earn $50,000 per year at your job, but your retirement account is worth $1,200,000, which are you going to be more concerned about when it comes to gauging your financial security? Your income is the goose, but the retirement account is the golden egg, which is part of your net worth.

[ Related: Your go-to financial planning checklist ]

How is net worth calculated?

Calculating your net worth is simple. All you need to do is add up all of your assets and subtract your liabilities (net worth = assets – liabilities). Let’s look at it as a 3-step process:

  1. Make a list of all of your assets: this includes your home, vehicles, savings, investments (stocks, bonds, mutual funds, cryptocurrency), retirement accounts, jewelry, furnishings, etc.
  2. Make a list of all of your liabilities: This includes all of your debts: mortgages, student loans, car loans, credit card debt, personal loans, medical debt, etc.
  3. Subtract your liabilities from your assets: this number is your net worth.

When calculating your net worth, you’ll notice that some of your possessions are both an asset and a liability.

For example, you may own a home valued at $400,000 with an outstanding mortgage balance of $300,000. In this case, when calculating your net worth, you would add the $400,000 home value to your assets and the $300,000 mortgage balance to your liabilities (meaning your home is adding $100,000 to your net worth).

Similarly, you would do the same thing for your car. If your vehicle has a market value of $25,000 and you owe the bank $10,000 on it, you add the $25,000 vehicle value to your assets and the $10,000 car loan to your liabilities.

Though student loans helped you gain an education that secured the career allowing you to grow your net worth, they solely go into the liabilities column and don’t numerically add to your assets (doesn’t seem fair, does it?).

To help you calculate your net worth, there are many free spreadsheets you can find online.

Average net worth by age

Once you’ve calculated your net worth, you may be tempted to compare it (at least mentally) to your friends and everyone else on social media that looks like they have everything you want. Here’s a chart to help you see how you’re progressing, courtesy of NerdWallet:

Age of head of family Median net worth Average net worth
Less than 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

There’s quite a variance between the median and average net worth numbers. However, you can go easy on yourself and use the median numbers for comparison’s sake since the overall median net worth of U.S. households is just over $121,000, according to the Federal Reserve’s latest survey on family finances.

Tips for increasing your net worth

Now that you’ve gone through the eye-opening exercise of calculating your net worth, you may be freshly motivated to get your numbers climbing quicker than they have been. Here are some ways you can increase your net worth:

  • Pay off your debt: High-interest debt kills personal wealth and net worth. Get rid of it systematically by paying off your high-interest credit cards one at a time (many people find the Debt Snowball Method very effective). The quicker you climb out of debt, the faster and higher your net worth will climb.
  • Buy property: Owning real estate is a proven long-term net worth builder, whether it be a personal residence or rental property in a prime location. Rental property is a double-win for you: you can put it in the asset column and invest the monthly cash flow.
  • Put more money into your retirement account: Your retirement savings account may be your biggest asset, and it probably should be. Many financial advisors advocate putting a minimum of 10% of your monthly income into your retirement account. If that’s not feasible, start where you can, and if you have an employer that matches your 401(k) contribution, contribute at least as much as the match to cash in on the “free money” the company is offering you.
  • Start a side hustle: This is a fast and effective way to increase your net worth. Cash in on a talent you have. Prepare taxes, sell crafts you make, drive for a ride-share service — there are countless ways for you to sacrifice some of your leisure time, make more money, and grow your net worth.

[ Related: How to increase your net worth ]

Tracking your net worth

Tracking your net worth over time is a non-biased indicator of your financial stability. It objectively tells you what you’ve done with your money in the past, and it helps you decide what to do with it in the future,

Take the time today to calculate your net worth. It will help you make that next important financial decision in your life, whether it be buying a new car, taking on debt to go back to school, or bumping up your retirement plan contribution the next time open enrollment rolls around.

Like the number on the bathroom scale, you might not always like what you see when you sit down and calculate what you’re worth financially, but you can become much healthier knowing it.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published February 15, 2022
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