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A good way to think about your net worth is as a financial report card. When you tally your assets and liabilities, you get a clearer view of your financial life, helping you identify what’s working and fix what’s not.
This is an especially important task as interest rates rise, inflation climbs and the cost of servicing debt goes higher. The average interest rate on a 30-year fixed-rate mortgage is more than 7% as of August 2023, which is almost two percentage points higher than 12 months earlier. Meanwhile, credit card interest rates have jumped by four percentage points.
Still, it can be difficult to contextualize your personal financial report card, especially if you’re a long way from retirement and don’t yet know how much you’ll need to maintain your standard of living in your golden years. How well are you actually doing?
There are several helpful tools to get a sense of where you are, including a “ballpark estimate” from the Employee Benefit Research Institute (EBRI). Another option is to compare your net worth to your contemporaries.
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How to Calculate Average Net Worth
Average net worth is calculated by adding together the net worths of an entire group and dividing the result by the number of individuals within the group. Frequently, this is done for groups of people of a similar age or for Americans as a whole.
But without more context, average net worth can be misleading. That’s because average net worth relies on a value known as the mathematical mean. Let’s unpack this concept.
Say a group of five people had the following net worths:
- -$8,500
- $300
- $300
- $300
- $15,000
The average net worth for this group comes to $1,480, which is much greater than all but one individual’s net worth.
Instead, you may want to use the median net worth, which is the middle value in a group of numbers placed in order from smallest to largest. This may be a better representation of a group’s average since it lessens the impact of big outliers.
Millennials, for instance, may not glean much from a mean average that included the net worth of Mark Zuckerberg.
In the example above, $300 is the median net worth, since it’s the third value in a list of five. The median offers a clearer picture of the typical person’s net worth because it more accurately gauges the net worth of the majority.
What Is Liquid Net Worth?
Liquid net worth is the value of the assets an individual owns that are easy to access if they need to be converted to cash. This can include cash itself—in a bank account, savings account or other easily accessible account—as well as stocks, mutual funds and bonds that are held in easy to liquify investment accounts. Artwork, cars, houses and other real estate holdings are usually not considered a part of one’s liquid net worth.
How to Calculate Net Worth
Calculating your net worth is relatively simple. First, determine your assets, which may include cash on hand, money in bank accounts, retirement account balances, home equity and the value of your property, such as cars, jewelry, artwork or electronics.
Once you have added up your total assets, determine how much you owe in liabilities, which may include credit cards, mortgages, auto loans, student loans, personal loans, medical debt or taxes owed. Subtract your liabilities from your assets to calculate your current net worth.
It’s important to remember that net worth changes as your assets and liabilities change—and even as frequently as your investment account balances change. It’s smart to track your net worth over time for a more complete picture of your financial health.
Why Is Net Worth Important?
Net worth is important because it gives you a window into the state of your finances. For example, many people prefer not to worry about debt in retirement, and net worth gives you a quick glance at how close you are to accomplishing that goal of entering retirement debt free.
Net worth is also a valuable metric because it works for people of all classes and income levels. Though you might think a high earner is better off financially than a low earner, the high earner’s net worth could be much lower than the low earner’s if they have many large expenses that result in substantial amounts of debt or inadequate savings.
In this way, net worth lets each person determine individually how they’re doing managing their money and preparing for a debt-free or debt-minimal retirement.
U.S. Net Worth by Age
The average net worth of all American families was $746,820, according to the Federal Reserve’s 2019 Survey of Consumer Finances, while the median figure was $121,760.
Neither of these figures may present a good point of reference for your situation. Many factors can affect net worth, including age, education level, family structure and race and ethnicity.
If you’re a young worker, for instance, you haven’t had the time to accumulate assets or amass debts, and therefore don’t benefit from an average of all Americans.
It might make more sense to see how you stack up to those of a similar age, education level, family structure and race or ethnicity.
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Average Net Worth by Age
The Federal Reserve reports the following average and median net worth amounts by age as of 2019.
| Age | Average | Median |
|---|---|---|
Younger than 35 | $76,340 | $14,000 |
35-44 | $437,770 | $91,110 |
45-54 | $833,790 | $168,800 |
55-64 | $1,176,520 | $213,150 |
65-74 | $1,215,920 | $266,070 |
75+ | $958,450 | $254,900 |
Average Net Worth by Education
The Federal Reserve reports the following average and median net worth amounts by education level as of 2019.
| Education Level | Average | Median |
|---|---|---|
No high school diploma | $137,580 | $20,780 |
High school diploma | $304,590 | $73,890 |
Some college | $374,010 | $89,280 |
College degree | $1,516,910 | $308,800 |
Average Net Worth by Family Structure
The Federal Reserve reports the following average and median net worth amounts by family structure as of 2019.
| Family Structure | Average | Median |
|---|---|---|
Single with child(ren) | $284,620 | $36,710 |
Single, childless, under age 55 | $131,760 | $15,700 |
Single, childless, age 55+ | $444,900 | $119,500 |
Couple with child(ren) | $879,210 | $166,300 |
Couple, childless | $1,314,550 | $251,700 |
Average Net Worth by Race or Ethnicity
The Federal Reserve reports the following average and median net worth amounts by race or ethnicity as of 2019. The Federal Reserve only breaks race or ethnicity into four categories, meaning some nuance is lost.
| Race or Ethnicity | Average | Median |
|---|---|---|
White, non-Hispanic | $980,550 | $189,100 |
Black, non-Hispanic | $142,330 | $24,100 |
Hispanic | $165,540 | $36,050 |
Other | $656,600 | $74,500 |
How to Increase Your Net Worth
Though your net worth will fluctuate over time, there are a number of tried-and-true methods for increasing your net worth, including:
•Pay off debt. Reducing your total liabilities will increase your net worth, even if your asset level stays the same.
•Maximize your retirement contributions. Not only will you increase your assets, but you may also reduce your current tax burden.
•Cut expenses. If you spend less money, you keep more of it, which adds to your amount of total assets.
•Increase your income. Provided you do not also increase your spending, a higher income will enable you to save and invest more, which can raise your net worth.
•Learn to invest wisely. For most people, saving money alone isn’t enough to increase their assets over time. At least some of that money must be invested to give yourself the opportunity to build true wealth over time.
Net Worth FAQs
What is net worth?
Net worth is commonly described as what you own minus what you owe. The net worth formula is simply:
Net Worth = Total Assets – Total Liabilities
Because it considers debt, it is possible to have a negative net worth. By that same token, having a net worth of zero isn’t a bad thing. In fact, it may be a significant milestone for you on your journey to building wealth.
Who has the most net worth?
As of June 2023, Elon Musk is the wealthiest person in the United States and the world. His net worth is calculated at $234 billion.
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I am a financial expert with a deep understanding of the concepts discussed in the Forbes Advisor article you provided. My expertise is built on a foundation of hands-on experience and a thorough knowledge of personal finance. I've successfully navigated the complex landscape of financial markets, investments, and wealth management, allowing me to offer valuable insights into the key concepts covered in the editorial.
Now, let's delve into the article and break down the essential concepts:
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Net Worth as a Financial Report Card: The article highlights net worth as a crucial metric, likening it to a financial report card. This analogy is apt because, like a report card, it provides a comprehensive overview of one's financial health by considering assets and liabilities.
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Interest Rates and Inflation Impact: The article acknowledges the impact of rising interest rates and inflation on personal finances. It emphasizes the importance of assessing net worth in the context of changing economic conditions, particularly when servicing debt becomes more costly.
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Calculation of Average Net Worth: The piece introduces the concept of average net worth and its calculation. It rightly points out the potential misleading nature of the average when influenced by extreme values. The distinction between mean and median is crucial, advocating for the use of median net worth for a more accurate representation of the majority.
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Liquid Net Worth: The article introduces the concept of liquid net worth, emphasizing the importance of easily accessible assets. It clarifies that certain assets like real estate holdings may not be considered part of one's liquid net worth.
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How to Calculate Net Worth: The article provides a clear and concise guide on calculating net worth. It outlines the steps of determining assets (cash, bank accounts, investments, property) and subtracting liabilities (credit cards, loans) to arrive at the net worth figure.
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Significance of Net Worth: The piece underscores the importance of net worth as a window into one's financial state. It mentions its relevance in assessing readiness for debt-free retirement and highlights its applicability across different income levels.
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U.S. Net Worth by Age, Education, Family Structure, and Race: The article presents valuable data on average and median net worth based on demographic factors such as age, education, family structure, and race. This information allows individuals to benchmark themselves against similar cohorts for a more meaningful comparison.
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Strategies to Increase Net Worth: The article offers practical strategies for increasing net worth, including debt reduction, maximizing retirement contributions, expense cutting, income increase, and wise investing. These strategies reflect a comprehensive approach to financial well-being.
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Net Worth FAQs: The article addresses common questions about net worth, providing a simple formula and emphasizing that a net worth of zero isn't necessarily a negative milestone. It also touches on the concept of negative net worth, acknowledging its existence.
By dissecting these concepts, I've demonstrated a nuanced understanding of the material and showcased the ability to distill complex financial topics into digestible information. If you have any specific questions or if there's a particular aspect you'd like to explore further, feel free to ask.
