Net worth is calculated by the total value of every asset that an individual owns subtracted by all their liabilities. Net worth can vary greatly over someone’s lifetime based on where they are in their financial journey.

College graduates can even start out with a negative net worth as they have a degree but no physical assets. Also a lower income employee can grow a large net worth through being frugal and investing wisely.

Where you start is not the primary factor of where you end up financially as it depends on your income, spending, saving, and investing over years. The higher your income earning power and lower your spending the faster you can build your net worth. Wise investments, business building, along with creating or buying cash flowing assets can speed up the process. 

To calculate your personal net worth first add up all your personal assets.

  • Value of your home.
  • Value of any rental houses you own.
  • The value of any land or property you own.
  • The value of your car.
  • Any brokerage account.
  • Your retirement account.
  • Stocks.
  • Bonds.
  • Precious metals.
  • Value of a business you own.
  • Value of a website you own.
  • Intellectual property, books, software, copyrights, trademarks, licenses, patents. etc,

Adding these things together for a total calculates the value of your assets.

You will also need to add up all your debts, student loans, and liabilities.

  • Your remaining mortgage balance.
  • Second mortgage.
  • Outstanding home equity line of credit.
  • Money you owe on a rental home mortgage.
  • Any debt on land.
  • The remaining balance on a car loan.
  • Margin debt.
  • Credit card debt.
  • Student loan debt.
  • Business debt.
  • Any personal loan debt.

A person’s financial assets minus all outstanding liabilities is what calculates their net worth.

Assets – Liabilities = Net Worth

Here is the average net worth by age according to the Federal Reserve 2019 study. 

Age Average      Net Worth     Median net worth
Under age 35    $76,300          $13,900
35 to 44             $436,200        $91,300
45 to 54             $833,200        $168,600
55 to 64             $1,175,900     $212,500
65 to 74             $1,217,700     $266,400
75 or older         $997,600        $254,800

This ideal is based on the majority of people in the U.S. The Average net worth is far higher than reality for most people as the billionaires and ultra-wealthy drive up the average. The median net worth is a much better guide of real net worth. The median net worth represents the middle value and not just an average calculated from a total.

The average net worth in the U.S. is skewed upwards to over $700,000, which again is misleading due to the outliers skewing the number. By avoiding all the ultra wealthy running up the average and getting to the middle by just looking at the median net worth it’s a more realistic $121,700.[1]

About 9% of Americans had a net worth of over $1,000,000 at the end of 2020.[2] This is likely to have dropped due to the stock market and crypto crash over the past year. A lot of people’s net worth is tied up in the stock market and most are buy and hold investors so their net worth drops with the stock indexes.

Also many newly made millionaires from the cryptocurrency, NFT, and crypto real estate sector suffered huge losses from peak values over the last 12 months.

Personal residences are another big store of net worth and so far only the most highly speculated on areas have gone down much in price. However we could see much lower prices in real estate as well as mortgage interest rates rise as the bubble pops. 

What net worth is considered rich?

According to Schwab’s 2021 Modern Wealth Survey, people in the U.S. believe it takes a net worth of at least $1.9 million to consider a person wealthy. The opinion is that most people can now become net worth millionaires. This could just be people middle aged with large 401ks, home equity, and still have high paying jobs.

Americans are no longer impressed with people obtaining millionaire status and qualifying them as wealthy. The new bar in the 2020s for wealth is becoming a multimillionaire or close to it.

A multimillionaire is someone who has at least two million dollars in net worth. A multimillionaire can lose a million dollars and still be considered a millionaire. Having $2,000,000 in net worth is a great buffer as it usually means that they have more cash on hand than millionaires.

Most millionaires have all their net worth tied up in investment portfolios and personal residences and usually rely on their paychecks for living expenses. They generally don’t have a lot of cash in the bank outside of emergency funds. Their net worth is tied up in assets.

Most multimillionaires are business owners with large cash flows from their operations and tend to have more cash on hand when needed as their cash flow exceeds their personal expenses. Multimillionaires usually have income sources other than jobs like businesses, cash flowing assets, real estate investments/rentals, intellectual property or trading and investing systems.

Earned income doesn’t mean you’re rich, it means you’re a high value employee. Net worth is what determines wealth. Your net worth reflects the amount of value you created above what you consumed. A high income individual is not the same as a high net worth individual. If you have a high income from a paycheck you are someone else’s cash flowing asset. Your job is not an asset.

If you have a high net worth you have investments and money working for you. To achieve a high net worth you must convert your earned income from your job into investments that pay you for owning them in cash flow and in capital appreciation. The younger you start the better.

The best places for growing your net worth is the stock market and real estate over the long-term. The fastest path to a high net worth is building a business with high positive cash flow. There are no short cuts just good processes of systematically working hard and working smart.

Average Net Worth By Age (Not What You Think)
Image created by Holly Burns