Updated June, 2023
How is net worth calculated?
Net worth is a snapshot in time of everything you own minus everything you owe. Let’s say you have:
- $100,000 in a 401(k) retirement plan
- $2,000 in a regular savings account
- $1,500 in a checking account
- a home worth $250,000
You’d start by adding up the value of all those assets — in this case, $353,500.
Now let’s look at what you owe:
- $5,000 in credit card bills
- $20,000 for a car loan
- $5,000 in student loans
- $150,000 on your mortgage
Add them all up, and you owe $180,000. Your net worth, then, would be your assets ($353,500) minus your liabilities ($180,000), or $173,500.
Your net worth will increase as you pay off debt. Knock out that $5,000 credit card tab, and your net worth goes up to $178,500. Pay off the mortgage, and your net worth would rise to $323,500.
How can a net worth calculator help me?
Net worth is a basic calculation to show the relationship of your debt to your assets. A positive net worth is always a good thing, because it shows you have a financial cushion in case of hard times. A negative net worth could indicate that you might be having financial difficulties.
Also important is the direction of your net worth — whether it has gone up or down from year to year. Most young homeowners have a very big loan and a very small net worth, at least until their house rises in value or they pay off some of their honking big mortgage. Five years later, they may have some paid-up equity in the home, less debt and a higher net worth.
On the other hand, consider someone who has a high income but lots of debt. That person may well have a lower net worth than our young homeowners — indicating that they are burning through their high income.
Bankers like to look at borrowers’ net worth to gauge their broad financial condition. Bankers also like borrowers with a positive net worth because it shows how much they would have if they had to sell everything — in other words, what kind of financial cushion they have.
What is a good net worth by age?
Everyone is different, but we do know who is average. The most recent net worth data from the Federal Reserve is from 2019 — a pre-pandemic year that might be more useful than data from 2020 or 2021. Median numbers are probably more useful than averages. “Median” means the midpoint of the data. Averages can get skewed by a few very wealthy people, such as Elon Musk, who has a net worth of $229.5 billion.