A net worth calculation is like GPS for your retirement savings. It tells you where you are now and which way you need to go to get to your destination. For instance, calculating your current net worth can help you keep your retirement plans moving in the right direction.
Key Takeaways
- Calculating your net worth involves adding up all of your assets and subtracting out all of your debts.
- There's no hard rule for determining your ideal net worth.
- You should know if your net worth is headed in the right direction, toward a comfortable future. If it's not, it's time to cut your spending, reduce your debt, or both.
How to Calculate Your Net Worth
Net worth is simply the total dollar value of all assets minus all liabilities. It's a benchmark for measuring financial health that is applied to companies as well as individuals. The formula is a simple one:
NetWorth=Assets−Liabilities
That's just two columns of numbers. Here's what goes into each column.
Assets
There are liquid assets and illiquid assets. Liquid assets are investments or possessions that can be turned into cash relatively quickly with little or no loss of value. Bank accounts, certificates of deposit, stocks, bonds, mutual funds, and similar investments fall into this category.
Illiquid assets are investments or possessions that are difficult to convert into cash quickly. If you own your home, it's an illiquid asset, as are any other real estate holdings, the balance in a retirement savings plan, and partnerships in businesses. They are not easy to convert to cash.
Most personal property, such as vehicles, furniture, and clothing, should be left out of your net worth calculation. Even if they cost a lot to acquire, their resale value may be unknown. However, investment-quality art, jewelry, and collectibles might be considered assets.
Liabilities
The other side of the ledger lists your debts. Credit card balances, car loans, home mortgages, student debt, and business loans all fall into this category. Personal loans count, too.
Add up all of your assets, subtract the total of your liabilities, and you've got your current net worth.
Where Do You Stand?
You may be interested in comparing your net worth to the figures in the chart below. The chart features the median and mean net worth of all Americans by age group, compiled by the Federal Reserve Board's Division of Research and Statistics. The median is the middle number. Half have less net worth, and half have more net worth. The mean number is the average net worth.
Don't place too much importance on your net worth in comparison with these numbers. This is national data with no demographic breakdown.
| Age of Person | Median | Mean |
| Less than 35 | $39.0 | $183.5 |
| 35-44 | $135.6 | $549.6 |
| 45-54 | $247.2 | $975.8 |
| 55-64 | $364.5 | $1,566.9 |
| 65-74 | $409.9 | $1,794.6 |
| 75 or more | $335.6 | $1,624.1 |
Note the big differences in mean and median net worth in each age category. Remember that the mean number is the average number. A relatively few very affluent people can skew the average. That may be why the mean net worth of Americans younger than age 35 tops $183,000.
The Ideal Number
What should your net worth be? Every person has a unique lifestyle and individual expectations, so there is no one-size-fits-all, universally agreed-upon number. That said, Thomas J. Stanley and William D. Danko, authors of "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" have offered this formula as rule of thumb:
NetWorth=10Age×PretaxIncome
Your annual household pretax income multiplied by your age, then divided by 10, equals "what your net worth should be," according to Stanley and Danko.
Using this formula with a basic salary of $25,000, we get the following results:
| Age | Income | Net Worth |
| 20 | $25,000 | $50,000 |
| 30 | $25,000 | $75,000 |
| 40 | $25,000 | $100,000 |
| 50 | $25,000 | $125,000 |
| 60 | $25,000 | $150,000 |
The numbers in the middle-age ranges might look feasible, but the formula is less likely to work for people just starting out in life. Few 20-year-olds have racked up $50,000.
Then again, most professionals, if all goes well, see a steady increase in salary over the years. Below, the same formula is used with higher incomes for older ages:
| Age | Income | Net Worth |
| 20 | $25,000 | $50,000 |
| 30 | $35,000 | $105,000 |
| 40 | $45,000 | $180,000 |
| 50 | $55,000 | $275,000 |
| 60 | $65,000 | $390,000 |
The net worth estimates are still unrealistic for very young workers, and they're not great for people approaching their retirement years. Still, the numbers may provide a benchmark for consideration. This may help you tell if you are at least moving in the right direction.
One formula suggests that your net worth at age 72 should be 20 times your annual spending.
Interestingly, under the scenario where income rises with age, the net worth estimate delivers results similar to those generated by a formula devised by David John Marotta, a financial advisor.
Marotta recommends following a savings plan that will result in a net worth that, by age 72, is 20 times your annual spending. Under this plan, the older you get, the more you save. Since most people earn more as they grow older, this is not unrealistic.
| Age | Income | Annual Spending Saved | Annual Spending | Net Worth* |
| 30 | $25,000 | 1x | $15,000 | $15,000 |
| 35 | $35,000 | 2x | $20,000 | $40,000 |
| 42 | $50,000 | 4x | $35,000 | $140,000 |
| 51 | $55,000 | 8x | $40,000 | $320,000 |
| 66 | $75,000 | 16x | $50,000 | $800,000 |
How Do I Calculate Net Worth?
To calculate your net worth, subtract your liabilities from your assets. So your net worth equals your assets minus your liabilities.
What Should My Net Worth Be at 30?
Determining what your net worth should be at any age can be a bit tricky, and it depends on your income.
According to "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" by Thomas J. Stanley and William D. Danko, you can calculate your ideal net worth in two steps. First, multiply your age by your pretax income. Then divide that number by 10.
Say you're 30 years old and your income is $50,000 per year. Your net worth should be $150,000, according to this formula. A $25,000 salary at age 30 would mean an ideal net worth of $75,000.
Is a Net Worth of 500K Good?
Answering whether your net worth is good depends on your age and your income. It also depends on whether you want to compare yourself to other people, or to what experts recommend is an ideal net worth, using a formula. Using a rule of thumb from "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" by Thomas J. Stanley and William D. Danko, you can input your age and pretax income to determine how your net worth stacks up. If you're 60 years old and making $100,000 per year, a net worth of $500,000 is below the ideal, which would be $600,000. (According to Stanley and Danko, an ideal net worth equals your age multiplied by your pretax income, divided by 10.) For anyone 50 and younger making that salary (or less), a $500,000 net worth is good.
Where Should I Be Financially at 35?
Fidelity recommends that you have about two times your salary saved by age 35.
Here's the breakdown:
By age 30 | Save at least 1x your salary
By age 40 | Save at least 3x your salary
By age 50 | Save at least 6x your salary
By age 60 | Save at least 8x your salary
By age 67 | Save at least 10x your salary
The Bottom Line
Formulas and averages can provide some insight into the issue of net worth, but absolute truths are harder to reach. At the most basic level, a positive net worth is better than a negative net worth, and a higher net worth is better than a lower net worth.
If your net worth is negative, strive to get it to a positive number. You're spending more than you earn. So make a budget, cut your spending, and pay off debts.
Even if your net worth is low, you can strive to build your net worth through saving and investing, a little at a time. Focus on maximizing the amount you save and minimizing the amount you spend. If your net worth is high, keep building on the momentum. You're working towards a real improvement in lifestyle: enough money to live well during your retirement years.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Board of Governors of the Federal Reserve System. "Changes in U.S. Family Finances From 2019 to 2022."
Thomas J. Stanley and William D. Danko Jr. "The Millionaire Next Door: The Surprising Secrets of America's Wealthy," Page 13. Taylor Trade Publishing, 1996.
Marotta Wealth Management. "Compute Your Net Worth Once a Year – 2006."
Fidelity. "How Much Do I Need to Retire?"
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