Your Questions Answered: What Is Net Worth? And How Do I Compare To the Average Net Worth By Age?


There’s a lot to think about when you’re trying to figure out your money situation. While you might measure your status in terms of your debt, that isn’t all there is to the equation. Plus, as you get older and pay off student loan debt, you’ll no longer be able to cling to this metric to define your financial status.

Instead, you’ll likely want to turn to one measurement in particular—net worth.

Today, we’ll answer a few questions including:

  1. What is net worth?
  2. How do you calculate net worth?
  3. What is the average net worth by age?
  4. How can you increase your net worth?

All of these questions are easier to answer than you probably think. Read on to find out.

What is net worth?

Your net worth is simply the difference between the value of your assets and the value of your liabilities.

Assets typically include:

  • Cash
  • Investments (stocks, mutual funds, retirement funds)
  • Property (current market value)
  • Other items that are likely to maintain or appreciate in value, like artwork, collectibles, etc.

For your assets that don’t have a cash value, you can find the market value with various tools. For cars, check the Kelly Blue Book value. For property value, Zillow might give you a rough idea (although asking a realtor is likely to give you a more accurate figure).

Liabilities include your various forms of debt, including:

  • Student loans
  • Credit card debt
  • Home mortgage
  • Auto loans

Enter these values on a spreadsheet for easy tracking, then head to the next section.

How do you calculate your net worth?

Calculating net worth is pretty simple, assuming you have gathered up all the numbers for the items above.

Using a tool like Mint can also be handy for getting up-to-date numbers on credit card, investment, bank, and other account balances.

No matter which method you choose, the calculation for net worth is simple:

Net Worth = Total Assets – Total Liabilities

From there you get a number. The higher it is, the better! But if you’re in your 20s and have student loan debt, it’s not uncommon to have a negative net worth.

Why is net worth important?

Net worth is simply a good rule of thumb to assess how you’re doing financially. When you’re older, it can give you a good idea of whether or not you have enough savings to retire. However, net worth isn’t necessarily the most important thing. You need to also consider how to use your net worth.

One way to use it? Aim to make sure your net worth is always increasing. If it decreases, there’s hopefully a good reason for it. For instance, if it’s for something like taking out student loans to earn a degree, your investment will hopefully pay off in the future.

Tracking your net worth is easy

Your best bet for tracking your net worth going forward is a tool that pulls in all your accounts. For this, I use Mint to get a quick snapshot of my net worth.

While it may be interesting to compare your net worth to that of others, it isn’t a great idea. Everyone has very different life situations, so it’s not easy to just compare and say that someone with a higher net worth is always better off. If you’ve earned an advanced degree, you may get a later start on increasing your net worth, but your earning potential might also be higher. Instead, to reach your own financial goals, just work on improving your own net worth.

If you’ve earned an advanced degree, you may get a later start on increasing your net worth, but your earning potential might also be higher. Instead, to reach your own financial goals, just work on improving your own net worth.

What is the average net worth by age?

You might also be wondering what your net worth should be at your age. There’s no easy answer, but if you want to get an idea, there are a few places to look.

This Motley Fool article published on USA Today used data from the U.S. census to come up with net worth averages by age. They reported different net worth levels based on age.

For those under age 35, they reported the median (50th percentile) net worth was $6,682.

For those age 35 to 44, the median (50th percentile) net worth was reported to be $35,000.

Just note that these are merely average net worth by age. They aren’t necessarily what your net worth should be, just a measurement of what the averages are for Americans.

For some measurements of what financial experts say your net worth should be, there are a few calculations you can use.

One comes from the book The Millionaire Next Door by Thomas J. Stanley. Stanley says, “Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.”

So, if you’re 26 years old and making $35,000 a year, your net worth should be $91,000, according to this formula. That sounds pretty high, doesn’t it? Don’t worry. This is just one example, and it does have several flaws.

The Simple Dollar has a slightly better rule of thumb.

“Take the average of your last 10 years of pretax income. Subtract a living wage from that average, meaning $15,000 plus $5,000 more for each dependent (including you) on your taxes. Multiply that by your age, then divide by 8. This will give you a good estimate of what your net worth should be.”

Be aware that this one still won’t work well if you’re young. You’ll likely end up with a negative number that might not reflect your actual net worth.

Another formula that may better account for your young age comes from Investopedia:

Net Worth = [Your Age – 25] X [Gross Annual Income ÷ 5]

If you’re age 25 or younger, your target net worth will automatically be negative or zero (which can make young folks feel a little better).

Net worth may not be as important to track in your 20s. Often, you’ll still have student loan debt that you’re working to pay off. Typically, your earning power is still pretty low, meaning you haven’t had too many chances to sock away money. However, in your 30s you should start seeing your net worth grow.

However, in your 30s you should start seeing your net worth grow.

No matter what your net worth is, you’re probably interested in increasing it, right? Here are some tips for getting started.

How can you increase your net worth?

Pay down debt and increasing savings and investments.

To do so, you can really only either:

  1. Increase the value of assets or
  2. Decrease the value of liabilities.

There are numerous actions you can take to accomplish each of these.

Here are several ideas for increasing your assets:

  1. Increase your income. Ask for a raise or moonlight with a side-hustle to bring in extra money.
  2. Earn a higher return on your investments. Look for stock market investments with low expenses, and get your money in early to take advantage of compounding. If you haven’t yet, you can get started investing pretty easily.

To decrease your liabilities, consider these:

  • Pay off debt. Paying off debt with the highest interest rates first will likely work best to increase your net worth. You can also refinance debt to lower interest rates.
  • Avoid borrowing. When you take out a loan, you’re likely decreasing your net worth. This debt may be counterbalanced by similarly valued assets, but you’ll still owe interest on your loan in most cases.
  • Drive your car longer to avoid auto loans. This one gets its own bullet because cars can be money traps. They depreciate quickly and cost money to maintain, meaning they’re generally more of a liability than an investment.

No matter what your net worth is now, focus on these strategies to keep increasing it over time. It’s definitely a process of baby steps.

Do you track your net worth? Are there any other financial metrics you prefer to track instead?

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