Understanding and Calculating Your Net Worth

Jenius Bank Team12/19/2023 • Updated 12/6/2024

Woman leaning against a wall with different financial graphs.

Understanding your net worth gives you a better understanding of your overall financial health.How do you know the shape of your finances? If you’re like many people, you look at your checking and savings balance, eyeball your debt payments, and hope for the best. While that’s a start, there’s more to your financial health than just what you have in the bank. Ultimately, your net worth may give you a broader picture of your financial wellness. Let’s dive in and see what your net worth encompasses, how to calculate it, and ways to improve it.

Key Takeaways

When you understand your net worth, it’s an opportunity to better understand your overall financial situation, both the upsides and the challenges.
Net worth may be positive or negative; positive means you have more assets than liabilities, and negative means you have more liabilities than assets.
Paying off debts and increasing your savings and assets over time may improve your net worth.

What Does Net Worth Mean?

Simply put, your net worth refers to the total value of your assets (what you own) minus the total value of your liabilities (what you owe others).¹So, what counts toward your net worth? Assets are items with monetary value, like real estate, cash, investments, artwork, and anything else with a tangible or definitive value.² Liabilities are obligations like your loans, credit card balances, and any other debt you may have.³ Here’s a quick breakdown of positive, negative, and zero net worth:

Positive net worth: your assets are greater than your liabilities
Negative net worth: your liabilities are greater than your assets
Zero net worth: your assets and liabilities are equal

Net worth applies to individuals and businesses and understanding net worth helps the individual or business make decisions. Below, we will use an example to demonstrate how this works in real life.

Why Is Net Worth Important?

By understanding net worth and knowing where you stand financially, you may be more mindful of your spending, better prepared to make informed financial decisions, and hopefully more equipped to achieve your goals. When you have a positive net worth, you may have less debt and be more capable of building savings and improving your financial well-being. But when you owe more than you own, you may want to focus on paying off existing debts.

Comparing Your Net Worth

Comparison is not always helpful for our mental health or motivation. But some people find value in understanding their progress compared to their peers. Here’s one data set from the Federal Reserve Changes in U.S. Family Finances report:⁴

Median Age	Median Net Worth 2019	Median Net Worth 2022	Change from 2019 to 2022
Younger than 35	$16,100	$39,000	143% increase
35-44	$105,900	$135,600	28% increase
45-54	$195,400	$247,200	27% increase
55-64	$246,300	$364,500	48% increase
65-74	$308,800	$409,900	33% increase
75 or older	$295,400	$335,600	14% increase

How to Calculate Your Net Worth

Calculating your net worth is relatively simple. You could use a net worth calculator, which automatically calculates your net worth once you enter your major assets, and total debts. You could also manually calculate this figure. Calculating your net worth manually takes time but may give you a better understanding of your true financial situation since many calculators limit the asset and liability categories you could include. Start by adding together the value of your liquid and non-liquid assets. Liquid assets are items that are immediately accessible and could be used as cash or quickly turned into cash. Non-liquid items are things like investments, insurance policies, and your home. These are items that may be difficult to immediately access or quickly turn into cash. Your combined assets may include the following:

Your personal checking and savings accounts
Certificate of deposit accounts
Retirement savings accounts
The equity you have in your home
The equity you have in your car and other vehicles like RVs or ATVs
Antiques
Electronics
Jewelry
Artwork
Furniture
Appliances

Keep in mind that you may want to contact an expert or an appraiser for items with unclear value to help determine their worth.You also need to total up your liabilities, which may include:

Medical bills
The principal balance on a mortgage
The principal balance on any vehicle loans
The principal balance on your student loans
The principal balance on your home equity loans or lines of credit
Credit card balances
Personal loans

Once you have the totals of your assets and your liabilities, simply subtract the liabilities from your assets to get your net worth. If you’re unsure about what counts toward your net worth, consult with a financial advisor.

Net Worth Example

So, how does net worth play out in real life? Let’s look at a quick example.Say you have the following assets:

Home equity of $250,000 (the difference between the value of your home and what you still owe)
An investment portfolio worth $75,000
Other assets (car, furniture, artwork, electronics, and jewelry) worth a collective $35,000

Your total assets come to $360,000Now, total your debts:

A car loan with a remaining balance of $15,000
Student loans with a total remaining balance of $13,000
Personal loans with a total remaining balance of $8,000
A remaining mortgage balance of $150,000

Your total liabilities come to $186,000. Now, let’s calculate your net worth. The calculation is as follows:Total assets – Total liabilities = Net worth$360,000 - $186,000 = $174,000In this example, you have a positive net worth of $174,000.

Does a High Net Worth Mean You’re Wealthy?

If your net worth is over $1M, people will typically consider you wealthy… or at a minimum, they will think you’re on track to financial wellness. Especially if you have access to liquid assets when you need them, only have the types of debt that help to build wealth, like mortgages, and continue contributing investments or a retirement account like a 401(k) or IRA on a regular basis. Overall, financial wellness, and wealth for that matter, depend on where you stand in relation to your goals. For some, $1M may be all the wealth they ever need, and for others, the number could be smaller or larger. So ultimately true wealth may be in the eye of the beholder.

How Could I Improve My Net Worth?

Whether you’re trying to improve a negative net worth or increase a positive net worth, there are things you could do to impact your situation. Here are some tips to keep in mind:

Save more: Building your savings increases your assets and helps offset your liabilities. Consider taking advantage of a high-yield savings account to put your money to work.
Reduce debt: The less debt you have, the higher your net worth could be. Start paying down what you owe and be strategic when taking on new debt.
Increase assets: Besides building your savings, you may want to diversify your assets. Diversified assets may have a better chance of growing in value over time and may help you weather downturns in certain markets. Diversifying may include investing in diverse portfolios, purchasing items that appreciate, or acquiring additional real estate.

Final Thoughts

Your net worth serves as a snapshot of your financial situation. Reviewing it regularly may uncover valuable insights that could empower you to make informed and strategic money moves. This ongoing review helps you both understand your current financial health standing and identify areas for improvement.

Financial WellnessBanking 101

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