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Net Worth: Definition, Calculator And FAQs

Cathie Ericson5-minute read
March 23, 2022

Understanding your net worth is a great way to monitor and track your financial progress and financial health. Maybe you’re looking to pay off debt or maybe you want to reach financial independence. Your net worth can be a guide to show you exactly how you’re progressing toward your goals.

Not sure what your net worth is? We’ll tell you everything you need to know.

What Is Net Worth?

Net worth is simply the total amount of your assets (things you own) minus all your liabilities (what you owe). It is an important indicator of your financial status.

When we mention assets, these are things like your house, your car, or money in your bank or savings account. Liabilities, on the other hand, are anything you owe, like the mortgage on your home or the balance on your credit card.

Net Worth Calculator

Wondering what your net worth is? It’s actually relatively easy to calculate. The basic formula is:

Assets – liabilities = net worth

This net worth worksheet can help you think of all the different assets and liabilities you might have. Just add up the market value of them to find out your net worth.

Input the worth of each of these; if you don’t have them, leave the line blank. 

Potential Assets

  • Real estate
  • Checking accounts
  • Savings accounts
  • Retirement accounts (IRA, 401(k))
  • Cars
  • Other

Add them up to find out your total assets.

Then subtract your liabilities:

Potential Liabilities

  • Mortgages
  • Credit card debt
  • Personal loans
  • Student loans
  • Car loans
  • Other

The remainder will be your net worth.

Net Worth FAQs

You might have lots of questions related to net worth; here are some common ones and their answers.

Why Does Net Worth Matter?

Understanding your individual net worth is important because it helps you monitor your financial health. It’s important to keep a close eye on it by tracking your total assets in order to make sure their value is continuously growing, or if needed make necessary changes to them. It also gives you transparency into what debts you have and how large they are so that you can work hard to pay them off.

What If My Net Worth Is Negative?

When you calculate your net worth, you might discover that it’s negative. There’s no need to panic, as this frequently happens, especially for someone younger who’s newer to the workforce. For example, you might have a high amount of student loan debt and because you’re just beginning your career, you haven’t had a chance to build up many assets.

But if you’ve been working for a number of years, built up a significant amount of assets, and still have a negative net worth, it’s time to look at where your money is going each month. You’ll most likely find that you’re over borrowing.

For example, you might have a car loan that’s higher than the value of your car. Maybe you have a significant amount of credit card debt, or you’re paying off a large medical bill. These situations can all lead to negative net worth. That’s when it’s important to construct a plan for eliminating your debt and lowering your spending each month in order to increase your net worth.

How Can I Increase My Net Worth?

The first step to eliminating debt is to make sure you aren’t generating more debt. The best way to do this is to create a budget for your monthly necessities and closely track the amount you spend. Many people find it helpful to toss their credit cards in a drawer and start using cash to pay for items. This will give you the opportunity to focus on credit card debt payoff without worrying you’ll continue to add to the balance.

Once you’ve quit adding new credit card debt, start working to pay down what you have. Many people use the debt snowball method. Pay the minimum balance on everything and then pay down as much as possible on your smallest debt each month. Once that’s paid off, do the same for your next smallest debt. Keep doing this until everything is paid off. The momentum of seeing those debts dwindle can be very motivating. Once you’re debt-free, you’ll be able to start realizing your true potential financially, and your net worth will start increasing.

And, you always can add to your net worth through maximizing your income, such as taking on a side gig or earning passive income. Talk to a financial advisor if you have questions about how to maximize your investments and protect your financial health.

How Often Should I Check My Net Worth?

As you’ve seen, it’s relatively easy to check your net worth. But you can get carried away if you check it too often. One smart strategy is to take out the existing net worth chart you made earlier in the article and update it with a re-calculation each month. That can help you see if you’re going in the right direction. Seeing your net worth increase month to month can help keep you motivated to stick to your goals.

How Does My Net Worth Compare To Other Americans?

It’s common to be curious about how you compare to others. According to the Federal Reserve’s Survey Of Consumer Finances, here are average net worths for U.S. families, organized in charts by income, age and education.

Income

Net Worth

Up to $25,300

$6,700

$25,301 to $43,500

$32,300

$43,501 to $69,500

$81,600

$69,501 to $111,400

$168,300

$111,401 to $177,100

$393,600

Over $177,101

$1,640,100

All families

$97,300

 

Age

Net Worth

Under 35

$76,200

35 to 44

$288,700

45 to 54

$727,500

55 to 64

$1,167,400

65 to 74

$1,066,000

75+

$1,067,000

 

Education

Net Worth

No high school diploma

$157,200

High school diploma

$249,600

Some college

$340,600

College degree

$1,511,110

 

What Is Net Worth In Business?

While it’s good to know your personal net worth, it’s also an important metric in business as a key performance indicator. If you’re planning to invest in a business, it would tell you about the health of the business, especially if you compared net worth year over year. You calculate it the same way as personal net worth: taking a company's assets minus its liabilities. This is the starting point to valuation.

The Bottom Line On Net Worth

Knowing your net worth is important not only for your own financial health, but also for making sure you’re paying down your liabilities so you can increase your net worth. Checking it regularly means that you can keep an eye on whether you’re heading in the right direction, and take steps to increase your net worth for a more positive financial future.

Want to know more about investing, budgeting and saving? Check out our library of articles to learn more about personal finances.

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Cathie Ericson

Cathie Ericson writes about personal finance, real estate, small business, education, retail/ecommerce and other topics for a host of brands and websites. Her work has been featured on major media websites, including U.S. News & World Report, Forbes, Business Insider, The Oregonian, Industry Dive, Boston Globe, CNBC, MSN.com, Realtor.com and Yahoo Finance, among many others. Find her @CathieEricson.com.