Net Worth: How Are You Doing?

May 21, 2012 by

Million Dollar BillI think the single best measure of your overall financial well being is “net worth.”

I write a lot here about aiming to be debt-free and how to pay off debt. But if your net worth is high, having debt is not necessarily a burden, and may even indicate that you’ve succeeded in using debt as leverage to make money.

What Is Net Worth?

In words, net worth is:

→ The cash you have in the bank


→ The current market value of everything you own (including stocks, your home, a small business, etc.)


→ All the debts you owe

In general, owning, tends to boost your net worth, while owing, tends to lower your net worth. Make your own spreadsheet or just search for “net worth calculator” to get some help calculating your net worth.

Why Net Worth Is a Good Measure of Your Financial Health

If your net worth is high, that generally shows one or more of these is true:

  • You’ve got a lot of cash
  • You own a lot of financial assets like stocks and bonds
  • You have a lot of equity in your home
  • You own a profitable small business
  • Compared to the value of what you own, you don’t have a lot of debt

If a few of the above describe your situation, then you’re prepared to weather a setback like a layoff or illness, you’ve got good capacity to make debt payments (or to borrow money, if needed), and you probably have a good start on a retirement nest egg. That’s what financial health is all about, right?

How Does Your Net Worth Compare to All Americans?

Here’s a chart I made with data from Statistic Brain. These figures are from the U.S. Federal Reserve, verified on December 27, 2011 by Statistic Brain. Americans' Net Worth Chart          

Median vs. Average

Here’s a simple illustration to show the difference between median and average. Imagine three people with these net worths:

    1. Joe: $10,000
    2. Mary: $100,000
    3. Mark Zuckerberg: $10,000,000,000 (estimate based on nothing)

The median net worth of this “population” is $100,000. That means the number of people with a net worth below $100,000 is the same as the number of people with a net worth above $100,000. In my simple example: One person above—Mr. Zuckerberg, controlling owner of Facebook—and one person below—Joe, Mr. Zuckerberg’s caddy. But the average net worth for these three individuals is $3,333,370,000. → ($10 billion + $100,000 + $10,000) ÷ 3 = $3,333,370,000 Unless you want to compare yourself in part to the mega-rich, I suggest you focus on the median to judge how you’re doing compared to all Americans. If your net worth equals the median for your age, half of all Americans in the age bracket have a net worth less than yours, and half have a higher net worth than you.

“I’m Above the Median—Woo hoo!”

Not so fast, bub.  For sure, being above the median is a lot better than being below, but be careful getting too happy with yourself if you’re above. Keep in mind that, as a whole, Americans are lousy savers. Having a median net worth in America is sort of like being the median weight person on The Biggest Loser: You’ve still got a lot of work to do. According to the Employee Benefit Research Institute, 56% of all workers said in 2011 that they have less than $25,000 saved. To have the sort of retirement years you might want, you likely need to be way ahead of the median pace shown in the chart above.

How to Grow Your Net Worth

No matter how you compare, don’t get discouraged! The keys to growing your net worth aren’t rocket science. I’d bet that you already know what you must do:

  • Avoid lifestyle inflation: When your income increases, save the extra money, don’t find new ways to spend it. In fact, try constantly to deflate your household expenses. Be thinking every day: What changes can I make to cut expenses?
  • Pay off high-interest debt: If you have a lot of credit card or other high-interest debt, the interest expense hamstrings building savings. When debts are paid off, save the payments instead of spending more.
  • Earn more money: In this day and age, we must all constantly be looking for opportunities to improve our skills and earn more cash. If you’re way behind the net worth curve or have a lot of high-interest debt, you may need to take a second, part-time job or “side hustle” for a while.
  • Don’t leave 401k match money on the table: If your employer offers a 401k match, that’s free money. Take it!
  • Invest wisely: Avoid mutual funds with an expense ratio over 0.5%.
  • Read up on “hedonic adaptation.” Does stuff make you happier?

What About You?

On what do you focus to gauge your financial well-being? What do you think is the most efficient way to grow net worth?

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  •  Net worth is definitely the score card for your financial fitness game in life.

    Investing money would have to be the most efficient way to grow the net worth. Well, paying off debt would be pretty efficient…basically any way to get compound interest to start working for you OR to get it to stop working against you.

    • Investlike1percent

      concur Jason, as someone whos networth is above average, i got there by compounding high return after high return. there was no other way to get there. waiting for salary to go up was painfully slow. rule of 72. 20% returns allow you to double your money in 3.6 years. 30% in less than 2.5…..

  • Okay first of all, I am way below average, holy cow. I was all proud of my net worth until I read this — thanks, Kurt, and happy Monday to you too! 😛 Second, I don’t actually think my net worth is as “high” as Mint says, because it factors in my car, which to me, isn’t an accurate judge of what I’m worth. Simply because if the car dies, I will have to replace it. Do you put cars in your “asset” column?

    • Awfully sorry Frugal P! If you’re making progress on your net worth, then you should be proud! Regardless of the number, if the trend is in the right direction, then you’re doing well, no?
      Technically, yes, the current value of your car should be included in Assets. But you’re right, it’s dicey. First, cars are costly AND rapidly depreciating assets, so you’d really need to update the (declining) value regularly to get an accurate read of your net worth. Second, as you say, if the car goes down the tubes, a heavily financed new one would instantly delete an asset and produce a big debt, putting a major whammy on your net worth. I’m afraid that’s ‘net worth reality’, however.

  • Joe

    We are doing pretty well comparing to the median and average, but I still worry. How will the people below median/average deal with retirement? It’s not a pretty picture. I guess that’ why many people are moving in with families these days. 

    • I worry too Joe. But, as you suggest, we’re adaptable, and many people are just going to have to live differently than they might have expected/hoped. But that may turn out to be a good thing in the long run.

  • Emily @ evolvingPF

    My husband and I are above the average but below the median for our age group, which is what I expected.  I don’t really care too much about net worth right now as we don’t have the income to grow it aggressively.  What I care about is learning to be satisfied at my current standard of living, practicing good saving and money management habits, and preparing to combat lifestyle inflation so we can more aggressively grow our net worth once we’re out of school.

    • Emily, sounds like you and your husband are setting yourselves up very well for financial success long-term: Investing in education, cultivating good money habits, and being conscious of the insidious effects of lifestyle inflation–the magic formula!

  • Averagejoemoney

    Wow. There’s a big difference between the median and the average….meaning some wealthy people are crushing it. That’s a little discouraging.

  • Katie

    Well the good news, I am above the median net worth for my age group, but I am well below the average.

    • I’m sure a very big majority of Americans’ net worth is below the average; I don’t think the average is at all useful for gauging oneself, since it’s heavily skewed by the relatively few in number ‘mega-rich.’

  • Haha, median weight of the Biggest Loser, perfect example.  I’ve got my work cut out of rme.  Thanks for the kick in the rear!

  • I focus on buying assets to increase my net worth.  When my wife asks about spending this or that on the house, I usually try to keep it to a minimum.  But increase my 401k or stock purchases?  I’m all in.

    Even though you said not to, I’m glad to see that I’ve beat both the median and average of my age bracket.

  • Lately my focus has been more on cash flow. However, our net worth has been improving, although it is currently negative. However, I can conceive of many individuals with poor net worth like myself, but have good cash flow and may actually be in a better financial health.

    • Good point! Depending on an individual’s circumstances and age, the financial trend may be far more important than the single net worth number.

  • I agree net worth is a good financial fitness test

  • Wow, based on that chart my hubby and I are well above the range for our age. This means we are doing good. I always like to see our networth. It’s a great assurance you are heading in the right direction.

  • I truly enjoy data like this.  You hit the nail on the head when cautioning people not to get too excited for being above the median. Because, as most of us can agree, the average person is a lousy saver. Or, has strapped his/herself to so much debt that they are boxed in.  Hopefully we can look at this data and realize that it doesn’t line up with where we should actually be.

  • Investlike1percent

    a lot of my networth is tied up in a business. the only part of my networth is stuff i consider cant be loss or taken away ie and assets not tied to debt. the rest is just fluff. easy come easy go as the the last few years of the economy has shown us.

  • Foofie

    Assuming the average will go down and median will rise after the re-distribution of wealth under Obama….thanks Barak

    • How much money do you reckon Barak (sic) has cost you so far?


      OBOMEE takes care of his friends. If you work hard, are frugal, and take business and investment risk, you ain’t no friend of OBOMEE.


    If you have a high net worth, you didn’t earn it. OBOMEE WANTS YOUR MONEEE! He need to buy the votes of all the free lunch hungry lazies so he can play more golf.

    • How’s the weather in Texas lately? 🙂

  • vanillanova

    hey numbnuts, none of the caddies i know are named joe…here’s a way to make your your money grow…don’t pay a money counselor most of which know no more than you do

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