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:
- What is net worth?
- How do you calculate net worth?
- What is the average net worth by age?
- 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:
- 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:
- Increase the value of assets or
- 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:
- Increase your income. Ask for a raise or moonlight with a side-hustle to bring in extra money.
- 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?
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|