What Is Net Worth? How To Calculate Your Net Worth

What is net worth?  You’ve probably heard people talk about net worth, but what is net worth? And do you know your net worth? When people talk about their net worth they are usually talking about how much money they have, but it’s not as simple as how much money you have in the bank….

Michelle Schroeder-Gardner

Last Updated: April 24, 2023

calculator on desk

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What is net worth? 

You’ve probably heard people talk about net worth, but what is net worth? And do you know your net worth? "how to calculate your net worth" over an image with calculators

When people talk about their net worth they are usually talking about how much money they have, but it’s not as simple as how much money you have in the bank. It’s a calculation based on your assets and debt.

Net worth is an important measure of your financial situation, and it is something that you can easily be made aware of. 

Like knowing your credit score, knowing your net worth will help you decide which steps you need to take to improve your financial situation.

We often hear wealthy people talk about net worth, but it’s important for everyone to understand what the concept is, whether your net worth is positive or negative. Fortunately, discovering your net worth is fairly easy to do!

Today, I will explain the simple steps it takes to calculate and track your net worth. Remember, it’s just one more way to gauge your financial health and progress.

There have been many times when someone has told me that they have no idea how much debt they have, how much money they have saved, what their assets are worth, and so on.

While you don’t always need to know an exact number, it’s usually wise to have a general idea.

Understanding what net worth means and how it affects you is important. 

If you’ve never calculated your net worth, it might be negative or lower than you expect, but the key is knowing what it is and to note how it changes over the months and years. Knowing it is one of the first steps to improving your financial situation!

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What is net worth?

Your personal net worth is the value of your assets (your possessions) minus your debt.

It is what you own minus what you owe.


Why should you know your net worth?

Being aware of your net worth and your overall financial situation has many positives.

Knowing your net worth can help you manage your money better. This is because if you know what net worth is and how to calculate yours, you may be more mindful of your spending and other financial decisions. For example, it may encourage you to set a goal and find ways to reach that goal, whether that’s a faster debt pay off plan, finding a side job, or cutting your expenses.

Knowing your net worth is also important because it’s very much related to your debt. Some people only think about what their assets are and base how well they are doing on just that. However, your debt plays a big factor!

Someone might have a car worth $30,000 and a house worth $300,000, but if they have $250,000 worth of debt (from a car loan, mortgage, student loans, credit card debt, and so on), then their net worth is $80,000. That’s a very simple example of net worth.

Even though it might look like someone has a high net worth, debt affects your actual net worth. 

Another benefit of knowing what net worth is and your overall financial situation is that it can prevent financial infidelity.

Financial infidelity happens when you’re in a relationship with someone who keeps secrets about money, from a costly addiction or hidden debt. When you know your net worth, you are more likely to catch instances of financial infidelity before it gets out of control.

Another huge benefit is that knowing your net worth can help you reach your financial goals because your net worth can be used as a measure of financial health. For example, if you are tracking your net worth, you can look closely at the details and find areas to improve. 

Overall, it’s good to know your net worth because you’ll be able to see a full picture of your financial situation, which will help you work towards realistic financial goals. Whether your net worth is negative, positive, or not as high as you’d like, the point is learning about where you stand with your money.

See, you might think that you are doing well financially, but there is a chance that you haven’t looked at the complete picture. I know people who think they are doing great, and then they figure out their net worth only to realize that it is negative because they didn’t account for their debt or some other reason.

Others may not calculate their net worth because they are afraid to face their debt. While it can be hard to stomach, seeing where you stand is a great first step to improving your financial future.


How do you calculate your net worth?

There are two steps to calculating your net worth, and I will walk you through each.

Step 1: Add up all of your assets. These are things you own, such as:

  • The market value of your primary residence and any other real estate you own. If you bought your home a long time ago, the original purchase price may be too outdated. Determining the current market value of your home can be done by using Zillow (although, Zillow doesn’t always give you the most accurate estimate), comparing it to similar homes near you, and so on. 
  • The value of your car, RV, and other automobiles. You can use Kelley Blue Book to determine this amount.
  • The amount you have in investments, such as retirement accounts, real estate, stock in companies, bonds, etc. Your 401(k) counts here too!
  • The amount you have in your checking and savings accounts, cash, certificates of deposit, etc.
  • The value of your jewelry and other collectibles.
  • The cash value of your life insurance is considered an asset.
  • Any other personal property you have should be added together here.

Step 2: Subtract all of your debt (also called liabilities) from the total value of your assets. Debts are things like:

  • Mortgage
  • Car loan
  • Credit card balances
  • Student loan debt
  • Medical debt
  • Personal loan
  • Other financial obligations

Once you have subtracted your debt from your assets, then you have your net worth.

Here’s the net worth formula:

Total Assets minus Total Liabilities = Net Worth

If you have $100,000 in assets and $100,000 in liabilities, that means your net worth is $0.

If you have $10,000 in assets and $40,000 in liabilities, that means that your net worth is -$30,000. Yes, you can have a negative net worth.

When you are younger and are just starting out, it is very common to have a negative or low net worth. If you have student loans or a high mortgage, it’s also common to have a negative or low net worth.

If you want to learn what is net worth so you can calculate yours, remember that we all start somewhere!


What is liquid net worth?

Your liquid net worth shows you how much cash you readily have access to. If you needed to quickly access a lot of cash, your liquid net worth would be important to know.

Liquid net worth is the money that you have in cash or cash equivalents minus your liquid liabilities. These are assets that can be easily converted to cash such as cash, checking/savings/banking accounts, money from a brokerage account, etc.

It typically does not include things such as real estate (your home equity does not count) or retirement savings (such as your 401k or IRA) due to the amount of time it may take you to convert it to cash and/or the fees or penalties that you may owe.


How often should you calculate your net worth?

I believe looking at your net worth once per quarter is a good starting point. Some people decide to look at it once a year or even once a month.

What works for many people is to look at their budget and net worth at the same time, which will help you see where you can make improvements.

Your net worth gives you the large picture, and your budget shows you where to make changes to your daily life.

That being said, there will be fluctuations from month to month. For example, if the stock market goes up and down, it may have a big impact on your net worth if you have a significant amount held in investments. However, it is still a good measure of personal wealth, and I recommend keeping track of it.

Also, it does not have to be difficult to look at your net worth often, especially if you use a personal finance tool, such as Empower, formally known as Personal Capital.

empower net worth calculator picture of dashboard
Here’s what Empower looks like. This is not my account, this is an image from Empower to protect my privacy.

Empower allows you to aggregate your financial accounts to easily see your financial situation. You can connect your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more – and it’s free.

With Empower, you can link all of your accounts for a complete picture of your net worth and financial situation.

I use Empower, and I know many, many others who do as well. It is a very popular and useful personal finance tool.

I recommend you check out Empower’s net worth calculator for a better measurement of your financial situation and net worth.

I absolutely love Empower and highly recommend it.


What is the average net worth by age?

If you’re wondering what net worth is, you might want to know what the average net worth is by age.

While this isn’t a perfect calculation, and there are a lot of different factors, below is a very simple comparison of net worth based on age. While this isn’t perfect, it shows you how you may compare to others in the United States.

According to the Federal Reserve (this report shows a lot of interesting statistics, median net worth by education, housing status, and more) as of 2019, the average net worth by family is:

  • The average net worth for those 35 and younger is $76,300.
  • The average net worth for those between the ages of 35 and 44 is $436,200.
  • The average net worth for those between the ages of 45 and 54 is $833,200.
  • The average net worth for those between the ages of 55 and 64 is $1,175,900.
  • The average net worth for those between the ages of 65 and 74 is $1,217,700.
  • The average net worth for those 75 and older is $977,600.

Now, if you have recently calculated your net worth and find yourself in a very different situation than the average person your age, please do not let this get you down or feel like you should give up. There are ways to improve your financial situation. And your net worth isn’t the only thing that determines how you’re doing. 

Your net worth doesn’t show how motivated you are, and if you’ve just recently learned what net worth is, you may have already made progress but didn’t realize it.

Remember that you’ve taken a good step towards improving your net worth by reading this article!

I’d love to hear what all of you have to say about the “average net worth by age” in the comments below.


Who has the highest net worth? What net worth is considered rich?

The highest net worths in the world belong to:

  1. Bernard Arnault & family
  2. Elon Musk
  3. Jeff Bezos
  4. Larry Ellison
  5. Warren Buffett
  6. Bill Gates

They each have a net worth in the billions of dollars!

However, having a net worth of $5 million to $10 million is generally considered to be high compared to the average person.


How can I improve my net worth?

If your net worth is negative or if you want to improve it, there are two things you can do: Increase your assets, and decrease your debt. I know this is easier said than done, but it all begins with small steps!

To do this, there are many things you could do, such as:

And so on!


What is net worth? – Summary

Whether you have a low, average, or high net worth, the key with tracking your net worth progress is to analyze how your net worth changes over the months and years.

Is your net worth going up? Down? Is it staying the same? Do you have a positive net worth or is it a negative number?

By tracking your net worth, you can better analyze what you may need to work on. Your net worth is a metric to gauge your personal finance situation, but having a low or high net worth doesn’t determine whether or not you are a good person!

Again, what is net worth? Remember, assets – liabilities = your net worth.

Do you know your net worth? Why or why not?

Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. This is a great article. I’m so happy that you mentioned liquid net worth. Often times people confuse the two. Also if you own a business, the value of that business is a part of your net worth. And finally, Funds in a family trust that are designated to you can also be considered as a non-liquid asset that will figure into your net worth at some point. Love the article.

  2. charles

    Many people also forget that funds saved for your retirement in plans like your 401k or an IRA or even precious metals held in a Gold IRA also count towards your net worth. Many people could be millionaires when these are added in already

  3. Nicole Christiano

    Great job breaking down the concept of net worth for those who may be unfamiliar with it! I found your post to be a clear and concise explanation of how to calculate one’s net worth, which is an important metric for evaluating one’s overall financial health. I appreciate how you highlighted the various assets and liabilities that factor into the calculation, and I think your tips for improving one’s net worth are spot-on. Keep up the great work!

  4. Alex Jackson

    Really cool. I’m looking at retirement from my day job in two years, and this comprehensive overview is really helpful Thank you.

  5. I can’t imagine that many people have a positive net worth over here in the UK. We have a large mortgage which we won’t be paying off any time soon! Just motivation to pay it off, I guess.