What Is Net Worth?

Net worth. Maybe it’s one of those concepts you came across before when you googled the net worth of some athlete or celebrity. 

But have you ever thought about your own net worth? While it certainly doesn’t capture everything about your financial life, the number can be a helpful snapshot. 

Net worth is simply a dollar amount representing the total value of everything you own (your assets) after you’ve subtracted everything you owe (your liabilities). In practical terms, the number can help you assess your finances at a glance.

Keep in mind that net worth is only one metric for measuring financial health. There are other aspects you should consider (like your credit score for instance) when taking a broad view of your finances. 

1. What’s the net worth formula?

So now you may be curious… “What’s my net worth?”

Here’s how to figure it out. To determine your net worth, subtract your total liabilities from the total value of your assets.

Net Worth = Total Assets – Total Liabilities 

Assets

Broadly speaking, your assets are anything you own that has value. Think about the things you can put a dollar amount to. The first one that probably jumps to mind is cash — like the balances in your checking, savings and retirement accounts. Assets can also include other items you could sell— like real estate, stocks, bonds or other valuables. 

Liabilities

Liabilities, on the other hand, represent any financial obligations you are legally required to pay. This can include your current debts (your mortgage, credit card debt, student loans) along with any future debts.

2. Compare your average net worth by age

Once you’ve calculated your net worth, you may be curious to see how you compare. Come on, everyone’s curious…

According to the Federal Reserve, here is the average net worth of US families in 2016, measured by the age of the head of household:

• Age 35 or younger: $76,200
• Age 35-44: $288,700
• Age 45-54: $727,500
• Age 55-64: $1.17 million
• Age 65-74: $1.07 million
• Age 75 or older: $1.07 million

Remember that averages include very affluent outliers. So, let’s look at it from another angle.

From the same report, here is the median net worth (or midpoint value) of US families in 2016, measured by the age of the head of household:

• Age 35 or younger: $11,100
• Age 35-44: $59,800
• Age 45-54: $124,200
• Age 55-64: $187,300
• Age 65-74: $224,100
• Age 75 or older: $264,800

While these comparisons may be interesting, they aren’t necessarily targets. What matters most are your own financial goals – both short-term and long-term – and understanding how you’re tracking against them. 

3. Optimize your financial habits to help increase net worth

Your day-to-day financial habits play a role in your ability to build net worth. Here are five habits to consider while keeping the big picture in mind. 

• Increase your contributions to your savings and investments, which could help your goal of increasing your net worth.
• Track your spending with an app, like Clarity Money, which is part of the Marcus family. Then, analyze your monthly expenses to determine your cost of living and make proactive changes to help you save money and increase investments. 
• Maximize your retirement savings, especially if your employer offers a 401(k) match. You may opt to open an Individual Retirement Account (IRA) if you hit the annual limit on your 401(k).
• Take advantage of compound interest by keeping your money in a savings account. The longer your savings can accumulate interest, the more your savings could grow. 
• Put your savings in a high-yield savings account or high-yield certificate of deposit to earn higher-than-average returns on your contributions.

4. Let your net worth motivate you

So, what is net worth?

Ultimately, it’s a formula for measuring what you own against what you owe. Evaluating your assets against your liabilities gives you a high-level view of your overall financial health. 

Tracking your net worth throughout your lifetime might serve as motivation to keep saving, investing and achieving your financial goals.

For others, it might be just another number. How you choose to think about net worth is entirely up to you.