What is net worth?

Net worth is the total value of all assets minus any liabilities. Put simply, net worth is what you own minus what you owe. 

Calculating net worth can be a helpful way to determine one’s wealth and the overall health of a person’s or company’s financial situation. It can also help you figure out what you may need to do to reach your financial goals.

Key takeaways

• Net worth is the total value of assets minus any liabilities or debt.
• Net worth can be a helpful snapshot of a person’s or company’s wealth.
• Positive net worth might be a sign of good financial health.
• Negative net worth might be a sign of poor financial health.

To calculate your net worth, subtract any debts and liabilities from the total value of your assets. In other words, subtract what you owe from what you own. 

To do this, you’ll first need to add up your assets and liabilities, which can take a little bit of time. Here’s how to calculate net worth.

Add up the total value of anything that could be considered an asset. An asset is anything with monetary value. This can include things like cash, checking and savings accounts, stocks, bonds, mutual funds, and retirement accounts. Assets also include personal property, such as real estate, vehicles and jewelry.

If you’re not sure what something is worth, you could have it appraised. But that might cost you. So if you’re just looking for a general idea of your net worth, you could estimate it yourself to get a rough idea. 

Do some research to help you be more accurate. For example, check Kelley Blue Book to determine the value of your car. If you’re trying to figure out how much your house is worth, use an old appraisal or compare your house to recent real estate listings around you.

A liability is a debt or financial obligation, like a loan or mortgage. It’s basically anything you owe. Liabilities can include things like:

• Credit card debt
• Car loans
• Personal loans
• Student loans
• Home mortgage

To calculate the total amount of your liabilities, add up all your debt. 

Now that you have an idea of your assets and liabilities, you’re ready to calculate your net worth. To get net worth, subtract liabilities from assets. When you do this, you’ll get either a positive or negative number, depending on the amount of assets and liabilities. 

In general, younger people tend to have a lower average net worth than those in older generations. That’s because of a lot of factors. And part of it depends on being financially responsible.

But if you’re comparing yourself to averages, you might be looking at the wrong statistic. Averages can be skewed by extremes on both the high and low ends. That’s why economists say median net worth may be a better metric. The median is the middle number if you were to line up all the numbers from lowest to highest. 

Check out these examples that show just how big a difference it can make: According to a Business Insider analysis of Federal Reserve data, the median net worth for 35-to-44-year-olds is $91,300. But the average net worth is $436,200. 

You can see how net worth tends to change as people age by looking at numbers for 45-to-54-year-olds. For that demographic, the median net worth is $168,600, and the average is $833,200.

If you’re looking to improve your net worth, here are a few steps you can take. 

Keeping a budget can help you see where your money is going and help you identify areas where you can save. More debt can mean more liabilities, which can lower your overall net worth. So tracking your spending and sticking to a budget can help.

If you’ve got your spending in check and have a little extra money after paying your bills, you could think about paying down some of your existing debts. You could work toward paying off credit card debt, for example. This can help lower your liabilities, which can increase your overall net worth.

If you don’t have a lot of debt, then it may be a good idea to consider adding more money to an emergency fund, savings account or retirement fund.

And money in savings and retirement accounts is considered an asset, so more money in these accounts will help your overall net worth. Just be sure to check the terms and conditions of a savings account before you sign up, and try to avoid accounts that charge a lot of unnecessary fees. 

If you’re renting a home or apartment, the money you pay each month for rent isn’t doing anything to help you build your net worth. There’s a lot more that goes into it, but if you’re in a position to purchase a home, it can help you build your net worth as you build equity.

As the Financial Industry Regulatory Authority explains, it might be a good time to start investing if you have positive net worth and cash flow.

Though there isn’t usually a quick return on investments, if your investments pay off, it will contribute to your total assets over time. This helps grow your net worth. Stocks, bonds, mutual funds and 401(k)s all fall into this category. 

But investing also comes with risk. So be sure to do your research, and try to talk to a financial expert if possible.

Calculating net worth can be a helpful way to get an idea of your overall wealth and financial health. It’s as simple as subtracting your liabilities from your assets. 

And no matter what your net worth is right now, there are always things you can do to improve upon and build your net worth, like paying down debt or increasing your savings. 

Another sign of financial health is your credit. You can check out how long it might take to build credit and learn ways a credit card can be part of the credit-building process.