What Is Net Worth and How Do You Calculate it?

Net worth represents the difference between an individual’s assets and liabilities, offering a clear snapshot of financial health. Calculating net worth involves adding up all assets – like cash, investments, property, and valuables – then subtracting total liabilities, including debts and obligations. This calculation helps individuals understand where they stand financially and can guide future financial decisions, whether the goal is growth, stability or debt reduction.

A financial advisor can help you devise strategies to increase your net worth and pursue your financial goals. Find a fiduciary advisor who serves your area.

What Is Net Worth?

Net worth is a financial measurement that reflects the overall value of what someone owns minus what they owe. This value isn’t limited to liquid assets like cash but includes a variety of assets, such as real estate, investments, retirement accounts, vehicles and personal property like jewelry or art. Liabilities, on the other hand, cover outstanding debts like mortgages, credit card balances, student loans, and any other personal loans.

Understanding net worth gives individuals insight into their financial position over time, often revealing patterns or trends when tracked regularly. A positive net worth shows that assets surpass liabilities, whereas a negative net worth implies that debts outweigh the assets owned. This figure can shift throughout one’s life due to income changes, spending habits, and investments, showing how net worth is influenced by financial decisions and external factors.

Seeing net worth numbers in black and white can make it easier to create a workable financial plan. A high net worth is a signal that you’ve managed your money well, including saving consistently and minimizing debt.

How to Calculate Net Worth

Net worth is one of the simplest financial calculations you can make. To find your net worth, you first need to know:

How much you have in assets
How much you owe in liabilities

Assets are things that have real value. So depending on your age, your assets might include a home, a retirement account, investment accounts, college savings accounts for your kids, land or other real estate you own, bank accounts, vehicles you own and cash. In addition, other assets might include collectibles, heavy machinery and equipment and accounts receivable, debts you are owed.

Liabilities represent your debts. Again, depending on your age and financial situation this may include student loans, credit cards, auto loans, mortgages, personal loans, business loans and lines of credit.

To figure out your net worth you’d add up all your assets, then subtract your liabilities. If you end up with a positive number, that means you own more than you owe and you have a positive net worth. On the other hand, if you come up with a negative number that means you have more debts than assets and you have a negative net worth. There are numerous ways to deal with a negative net worth. Your options often depend on the type of debt you have that is keeping your net worth in negative territory.

Consider Jane, who owns a home valued at $300,000, has $50,000 in savings and has $60,000 in her company 401(k). Her total assets amount to $410,000. Jane also has a $150,000 mortgage and $10,000 in credit card debt, bringing her liabilities to $160,000. Subtracting her liabilities from her assets, Jane’s net worth is $250,000, showing a positive financial position based on her assets and outstanding debts.

What Is a Good Net Worth?

What Is Net Worth and How to Calculate It?

A “good” net worth varies widely depending on age, income level, and individual financial goals.

Consider Sarah, a 30-year-old with a net worth of $50,000, and Mark, a 60-year-old with a net worth of $500,000. For Sarah, who’s early in her career and steadily building assets while paying off student loans, $50,000 can represent a strong start, especially if her net worth grows consistently over time. Mark, however, is nearing retirement, and his $500,000 may or may not be sufficient depending on his retirement goals, lifestyle and health considerations.

Generally, financial advisors often recommend using benchmarks based on age and earnings to assess if net worth aligns with personal goals and life stage. For example, a common rule of thumb is to have a net worth equal to one’s annual salary by age 30, doubling that amount by age 40, and reaching five times the salary by retirement age.

Another way to determine what your net worth should be at a given age is to divide your age by 10, then multiple that by your gross annual income. So if you’re 40 years old making $100,000 a year then you should have a net worth of $400,000.

It’s also important to distinguish between high net worth and ultra-high net worth definitions. High-net-worth individuals have a net worth of $1 million or more in investable assets. Someone who’s considered to be ultra-high net worth would have $30 million or more in investable assets.

How Can You Increase Your Net Worth?

Increasing your net worth involves various strategies that either boost assets or reduce liabilities. Here are some key approaches:

Grow asset value passively: Certain assets, like a home, can increase in value over time without action on your part. This natural appreciation can contribute to net worth growth.
Build savings consistently: Increasing the value of bank accounts requires a commitment to regular saving, helping to grow liquid assets over time.
Invest Wisely: Investing in growth-focused assets can increase net worth. Options include employer-sponsored retirement plans, IRAs, or taxable brokerage accounts. Select investments based on your risk tolerance, time horizon and financial goals. For those less comfortable with risk, value stocks offer potential for appreciation with relatively stable growth. Those open to more risk may explore options like day trading, aiming for quicker gains.
Reduce liabilities: Reducing debt directly boosts net worth. For instance, selling a second vehicle to eliminate a car payment can lower liabilities and improve financial standing.
Pay down debt strategically: Use debt repayment plans like the debt avalanche (targeting high-interest debt first) to lower liabilities faster. Speed up debt repayment by reducing interest rates through refinancing or balance transfers, helping free up funds for asset growth.

Bottom Line

Net worth can be a useful way to measure how you’re doing with your money. It can be helpful to review your net worth at least once a year, though if you’re focused on growing wealth you may want to track it on a month-to-month basis. You can also use your net worth as a measuring stick to compare yourself against other people in your age and income range to see if you’re keeping pace with the average net worth.

Tips for Increasing Net Worth

Keeping investment costs low can help you to grow your portfolio and improve net worth. Choosing the right investments can help. For instance, exchange-traded funds (ETF) or index funds may offer lower expense ratios compared to actively managed mutual funds. You can also save on investment costs by choosing an online brokerage that offers commission-free trades on stocks and ETFs.
Consider talking to your financial advisor about various ways you might be able to improve your net worth over time. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.