How to calculate your net worth

Your net worth is a great measure of your overall financial health and how well you've been able to save over your lifetime. It's important to understand how to calculate it and track it over time.

One of the first steps in figuring out how you're doing financially is to calculate your current net worth. Your net worth is important because it’s one of the best indicators of how well you’ve been able to save and manage your finances. 

How to calculate it

Your net worth is calculated by adding up all your assets (what you own) and subtracting all your liabilities (what you owe).

You can do this on a piece of paper, an Excel spreadsheet, or by using a tool such as Mint or another similar personal finance tool. Start by listing out all your assets and the current balance for each account. 

Here's a list of the different types of assets you may have:

• Checking/savings accounts

• Investment/retirement accounts

• Cryptocurrency

• Vehicles

• Gold/jewelry

• Primary residence

• Vacation/rental properties

• Land

• Businesses

• Cash-value life insurance

Once you have listed all your accounts, add them up to calculate the total value.

After that, do the same thing for all your liabilities. Your liabilities are your outstanding debts that you still owe.

Here's a list of the different types of liabilities you may have:

• Credit cards

• Car loans

• Student loans

• Medical loans

• Personal/business loans

• Lines of credit

• Mortgages

• Life insurance loans

Once you’ve summed up the totals for your assets and your liabilities, take your total assets minus your total liabilities to determine your net worth. Make sure to write down your current net worth somewhere so you can reference it in the future. It’s important to be able to track your net worth over time and monitor your progress.

If you’re just starting out, your net worth might be negative. This is common and nothing to worry about. The important thing right now is to know what your current net worth is so you can work on improving it over time.

What should your net worth be?

How much your net worth should be will depend on your individual goals and situation, but below is a chart from Nerd Wallet showing the median and average net worth for different age groups in the United States. These figures can be used as a general guide on how your net worth compares to others.

One of the main factors when it comes to your net worth is your income. The more money you make, the easier it tends to be to save money. Generally, people who have higher incomes tend to have a higher net worth.

This isn’t always the case, though.

There’s another important factor when it comes to your net worth – your expenses. This is the factor that’s the most difficult for a lot of people. Keeping your expenses under control isn’t easy. We live in a world focused heavily on consumption and buying things. It’s difficult to keep your expenses low when you’re surrounded by others who aren’t doing the same.

It’s also common for expenses to grow as your income grows. This is what’s known as “lifestyle creep”. As income grows, people often start to improve their lifestyles as well. They’ll buy a bigger house, a nicer car, and newer clothes. This is what you want to avoid.

The key to building wealth is to continue to increase the gap between how much money you make and how much money you spend. The larger the gap, the faster your wealth grows.