What Is Net Worth and How Do You Calculate It?

Have you ever wondered how to measure your financial health beyond just looking at your bank account balance? Enter net worth—the ultimate yardstick for assessing your financial well-being. It's not just for the wealthy. Knowing your net worth is about understanding where you stand financially and how you can navigate successfully toward your goals.

Here's everything you need to know about net worth, including how to calculate it, what affects it, how to improve it and why you should be tracking it.

What Is Net Worth?

Net worth is defined as the total calculated value of your owned assets minus any liabilities you may owe.

In other words, if you were to sell all your belongings and use the proceeds—along with your existing finances—to pay off your debts, any amount left over is your net worth. If you still owe money at the end of that mental exercise, you have a negative net worth.

Your net worth can (and should!) fluctuate. It's merely a snapshot of your financial health at any given moment. As such, it's important to track your net worth over time to make sure it's trending upward and toward your financial goals.

How To Calculate Your Net Worth

The formula for calculating net worth is very simple:

• • Net Worth = Assets - Liabilities

Assets are what you own and liabilities are what you owe. To calculate net worth, these are some of the common assets and liabilities to include:

Examples of financial assets

• • Cash
• • Bank and investment accounts (including 401(k)s)
• • Real estate
• • Car(s)
• • Jewelry
• • Other personal items (e.g., collectibles)

Examples of financial liabilities

Outstanding balances on:

• • Loans (personal, student, car, etc.)
• • Mortgage
• • Lines of credit
• • Credit cards
• • Tax bills
• • Medical bills

Example of calculating net worth

If you own a home that's worth $300,000, have $50,000 in savings and $20,000 in investments, your assets total $370,000.

If you owe $200,000 on your mortgage and $10,000 in credit card debt, your liabilities amount to $210,000. Therefore, your net worth would be $160,000:

• • Assets - Liabilities = Net Worth
• • $370,000 - $210,000 = $160,000

What Affects Your Net Worth?

There are many factors that influence net worth, including your investment decisions, spending habits and income. The state of the economy and stock market may also play a role. For example, investments in equities (including mutual funds and ETFs) can experience wild swings in value—especially during times of economic uncertainty. This impacts the asset side of an investor's net worth.

Similarly, if you're a homeowner, the market value of your home can go up or down in the short term due to the season, interest rates and real estate demand in your region.

Interest rates can also affect your net worth. When rates are high, savers earn more interest and borrowers pay more.

These fluctuating values are part of the reason why it's important to track your net worth over time. As long as you observe a trend of upward growth over time, you're moving in the right direction.

Tips To Improve Your Net Worth

• • Make smart investments: A diversified portfolio of investments—including mutual funds, ETFs, stocks and bonds—that take your risk tolerance and time horizon into account can significantly boost your net worth over the long term. If you aren't already an investor, here are 10 lessons to learn before you start investing.
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• • Manage debt: Be strategic with borrowing that increases your net worth, such as taking out a mortgage to purchase a home. Prioritize paying off debts that are a drag on your net worth, especially high interest credit card debt, thereby freeing up resources to increase your assets.
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• • Budget and save: Creating and sticking to a budget helps control spending and increase savings, both of which contribute positively to your net worth.
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• • Track your expenses: Tracking your expenses helps identify areas where you can cut costs and redirect funds toward increasing your assets.
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• • Be emergency-ready: A lengthy bout of unemployment can eat into your personal net worth, especially if you end up having to sell investments or other assets at a loss. Plan ahead by keeping your skills up to date to stay employable, and start an emergency fund that you can tap into if the need arises.

Why It's Important To Track Net Worth

As mentioned above, calculating your net worth can provide an accurate picture of your overall finances at a given point in time. But the best way to measure your progress is to record and track your net worth regularly. Doing so will help you:

• • Identify financial issues: By catching any negative trends early on, you can take corrective action before they become larger problems.
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• • Make better financial decisions: Armed with knowledge of your net worth, you can make informed decisions about investments, major purchases and saving strategies.
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• • Plan for the future: Understanding your net worth enables you to set realistic financial goals and create a road map to achieve them.

How Does Your Net Worth Measure Up?

The Federal Reserve Board collects data on the net worth of U.S. families in its Survey of Consumer Finances, which is conducted every three years. The most recent report was issued in October 2023 using data from a 2022 survey. The overall median net worth was $192,900, which means half of U.S. families had a net worth less than that amount, and the other half had a net worth greater than that figure. Consult the charts below to see how your family net worth compares to your cohorts by income, age and education.¹

Average U.S. Family Net Worth by Income, 2022

Income Percentile (Median Family Income)	Median Net Worth
Less than 20 ($21,600)	$14,000
20–39.9 ($44,800)	$71,000
40–59.9 ($71,200)	$159,300
60–79.9 ($115,700)	$307,200
80–89.9 ($189,200)	$747,000
90–100 ($378,300)	$2,556,200

 

Average Family Net Worth by Age, 2022

Age of Reference Person (Years)	Median Net Worth
Less than 35	$39,000
35–44	$135,600
45–54	$247,200
55–64	$364,500
65–74	$409,900
75 or more	$335,600

 

Average Family Net Worth by Education, 2022

Education of Reference Person	Median Net Worth
No high school diploma	$38,100
High school diploma	$106,800
Some college	$136,500
College degree	$464,600

 

A Metric Worth Its Weight in Gold!

Your net worth isn't just a number—it's a reflection of your financial well-being. By understanding what it is, knowing how to calculate it and taking steps to improve it, you can continually monitor your financial health and empower yourself to make positive changes along the way. So, take the time to track your net worth, make adjustments as needed and watch as you progress toward your goals and a more secure financial future.

Want to learn more about improving your fiscal fitness? Check out these 5 Tips to Build a Better Financial Future.

 

Tamar Satov is a freelance journalist based in Toronto, Canada. Her work has appeared in The Globe and Mail, Today's Parent, BNN Bloomberg, MoneySense, Canadian Living and others.

 

Sources/references

1. Aladangady, A et al. Changes in U.S. Family Finances from 2019 to 2022. Board of Governors of the Federal Reserve System. October 2023.