What Is Net Worth and Why Does It Matter?
Net worth is the single most complete snapshot of your financial health. It tells you where you stand financially at any given moment — not how much you earn, but how much you have accumulated.
The formula is simple: Net Worth = Total Assets − Total Liabilities
Tracking net worth over time is the best way to measure financial progress. Income can mask poor financial habits; net worth cannot.
Step 1: List All Your Assets
Assets are everything you own that has monetary value:
- Liquid assets: Checking accounts, savings accounts, money market accounts, cash on hand
- Investment accounts: 401(k), Roth IRA, Traditional IRA, brokerage accounts, HSA balance
- Real estate: Current market value of your home(s) or investment properties
- Vehicles: Current market value (check Kelley Blue Book or Edmunds)
- Business interests: Estimated value of any business ownership stake
- Other assets: Life insurance cash value, valuable collectibles, jewelry (if significant)
Use current fair market values, not purchase prices. What would each asset sell for today?
Step 2: List All Your Liabilities
Liabilities are everything you owe:
- Mortgage balance(s)
- Home equity loan or HELOC balance
- Auto loan balance(s)
- Student loan balances (federal and private)
- Credit card balances
- Personal loan balances
- Medical debt
- Any other outstanding debt
Use current outstanding balances, not original loan amounts.
Step 3: Calculate
Add up all assets. Add up all liabilities. Subtract liabilities from assets.
Example:
- Assets: $45,000 (savings) + $125,000 (401k) + $320,000 (home value) + $18,000 (car) = $508,000
- Liabilities: $240,000 (mortgage) + $28,000 (student loans) + $12,000 (car loan) + $3,500 (credit card) = $283,500
- Net Worth: $508,000 − $283,500 = $224,500
Average Net Worth by Age in 2026
According to Federal Reserve data (most recent Survey of Consumer Finances):
- Under 35: Median ~$39,000 / Mean ~$183,000
- 35–44: Median ~$135,000 / Mean ~$549,000
- 45–54: Median ~$247,000 / Mean ~$975,000
- 55–64: Median ~$365,000 / Mean ~$1,566,000
- 65–74: Median ~$410,000 / Mean ~$1,794,000
Median is a more useful benchmark than mean because a small number of ultra-wealthy households skew the mean significantly upward.
How to Improve Your Net Worth
Net worth grows when you increase assets, decrease liabilities, or both:
- Invest consistently — time in the market is the single biggest driver of asset growth
- Pay down high-interest debt aggressively
- Avoid depreciating assets (new cars, expensive toys) that pull net worth down
- Maximize tax-advantaged accounts (401k, Roth IRA, HSA) to compound growth efficiently
- Build equity in your home rather than extracting it repeatedly
Aim to track your net worth monthly using a simple spreadsheet or a tool like Personal Capital, Monarch Money, or YNAB.
Frequently Asked Questions
Should I include my car in net worth?
Yes, include the current market value. But be aware that cars depreciate quickly — a $40,000 car may be worth $28,000 a year later.
Does net worth include retirement accounts?
Yes. Include your 401(k), IRA, and other retirement account balances at their current value.
What is a good net worth at 40?
A common benchmark is having 3–4x your annual salary saved by age 40. On a $75,000 salary, that is $225,000–$300,000 in net worth.
Bottom Line
Calculating your net worth takes about 30 minutes the first time. After that, a monthly five-minute update shows you exactly whether you are moving in the right direction. It is the north star metric for personal finance — more useful than income, savings rate, or any single account balance.