If you’ve never heard the term before your net worth is the value of all of your assets minus all of your liabilities. It’s kind of like a financial report card. Tracking your net worth is one of the best things you can do to see if you are building or killing your wealth.
Net worth is also a way to see how you stack up against your peers. Chances are, if you’re a natural born saver even on a modest income, you stack up pretty well against the rest of the country.
Ready to see the numbers?
Average Net Worth of Americans
Unfortunately when trying to figure out the average net worth in the US you’ll run into a wide variety of numbers, some of which I had a hard time sourcing. I decided to stick with the numbers that have actually been backed up.
The numbers below come from the 2011 Census Bureau study. Here’s how they panned out:
Net Worth by Age
- Less than 35: $6,676
- Age 35-44: $35,000
- Ages 45 – 54: $84,452
- Ages 55 – 64: $143,964
- Ages 65-69: $194,226
- Ages 70-74: $181,078
- Ages 75 and over: $155,714
If you aren’t surprised by these numbers you should be. They are incredibly low and likely not enough for a decent retirement no matter where you live. Let’s also not forget that these net worth numbers include home values which means the average American has very little in savings or investments.
The good news is no matter how you stack up, you still have the ability to improve your financial situation. See below on how to calculate and improve your net worth.
How to Calculate Your Net Worth
Before you can go off making improvements to your net worth you need to know where you stand. Calculating this number is fairly straight forward.
Pull out a sheet of paper and list all of your assets. This includes things like money you have in the bank, your investments, and the value of your home and vehicles. (Use fair values – don’t artificially inflate them or this practice is pointless!) Next make a list of all of your debts. This includes credit card balances, personal loans, car loans, your mortgage and any other liabilities you have.
Subtract your liabilities (debts) from your assets. The number you get is your net worth.
If you want to make this even simpler you can use the net worth calculator from BankRate.
What You Can Do To Build Your Net Worth
Now that you have a good honest look at where you stand there are some simple things you can do to improve your net worth. While you likely won’t see overnight results doing these things over the span of years can add up significantly.
Invest in Appreciating Assets – To raise your net worth you need to make your money work for you. You can do this by investing in appreciating assets like real estate, stocks and bonds.
Put Money in Your Retirement Account – If you have an employer sponsored retirement account start making contributions if you’re not already. If your employer offers a match do what you can to invest up to that match.
If you’re not offered a retirement plan through your workplace open up your own retirement account. (I recommend Betterment for this.)
Get Rid of Your Consumer Debt – Consumer debt is the worst kind of debt you can have. If you charge a lot of unnecessary expenses on credit cards or take out personal loans you’re going to end up paying ungodly amounts interest for items you never even needed. If you want to build wealth you need to avoid consumer debt at all costs.
Use Debt Only as Wealth Building Tool – Debt is not good or bad in and of itself. Debt can be used responsibly as a wealth building tool or it can be used to your financial demise. Use debt responsibly when needed for smart (and well thought out) investments such as rental homes.
Live Below Your Means – And last but certainly not least, you need to master the habit of living below your means. If you’re always spending more than you make you’re going to have a negative net worth and you’ll never build wealth.
Increasing your net worth doesn’t mean you have to live like a pauper but it does mean you need to make conscious decisions about your money.