Personal Finance
What Does Net Worth Mean & How Do You Calculate It
When you think of achieving financial wellness, a few things may come to mind, like your credit score, debt-to-income ratio (DTI), and the value of your emergency fund. Another important factor? Net worth. Keeping track of your net worth is a valuable way to better understand your financial health.
In this article, we’ll explore more about what net worth is and how to calculate it.
What is net worth?
Net worth measures the value of your assets minus your loans and financial obligations (otherwise known as liabilities).
Assets are everything a person owns that has monetary value — such as cash, investments, retirement accounts, savings accounts, life insurance policies, savings accounts, and real estate.
Liabilities, on the other hand, include debts or financial obligations — such as mortgages, loans, and credit card debt.
How do you calculate your net worth?
Start by making a list of all your assets and liabilities, including investment portfolios, credit card balances, mortgages, and other debts. Then, use the formula below to calculate your net worth.
Net worth formula
Assets - Liabilities = Net worth
Let’s take the above formula and put it into practice with an example. Imagine a couple owns a home valued at $300,000 and a car worth $20,000. They also have $10,000 in savings and $50,000 in their retirement accounts. Their debts include a $200,000 mortgage and $5,000 in credit card balances.
Using the net worth formula, the calculation would look like this:
(300,000 + $20,000 + $10,000 + $50,000) - ($200,000 + $5,000) = $175,000.
The couple’s net worth comes out to $175,000.
What is the average net worth in the U.S.?
Many factors can affect your net worth, including income, age, and education. That said, a person’s net worth often increases as they progress through different stages of life. Typically, debts decrease while income and assets increase.
For example, someone in their 20s may have debt, like student loans, and a lower income with little to no savings. But as they move up in their career and pay down debt, they can increase their net worth.
According to Federal Reserve data from 2019, the average net worth of U.S. households was $748,800. And the overall median net worth was $121,700.1
Here’s what the average and median net worth was for different age groups:
| Age group | Average net worth | Median net worth |
| Less than 35 | $76,300 | $13,900 |
| 35-44 | $436,200 | $91,300 |
| 45-54 | $833,200 | $168,600 |
| 55-64 | $1,175,900 | $212,500 |
| 65-74 | $1,217,700 | $266,400 |
| 75+ | $977,600 | $254,800 |
Generally, your net worth increases as you get older but may start to decrease during your late retirement years, as most people live on a fixed income. This is why retirement planning is a good idea to help ensure that you’ll have the resources to support yourself. By tracking net worth over time, you can gain a better understanding of your financial health and make informed decisions about the future.