Net Worth: How Are You Doing?

Dec 18, 2018 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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