What Is Net Worth and Why Does It Matter?

Income tells you how much you make. Net worth tells you how much you have. Most people focus on their salary — but two people earning the same income can have net worths that differ by millions of dollars. Net worth is the real scorecard of financial health.

The Simple Definition

Net worth = everything you own (assets) minus everything you owe (liabilities). If your assets total $250,000 and your debts total $180,000, your net worth is $70,000. This number can be positive, negative, or zero — and it changes every month.

What Counts as an Asset?

• Cash and savings accounts
• Investment accounts (stocks, bonds, ETFs, mutual funds)
• Retirement accounts (401k, IRA, pension)
• Real estate (current market value of your home)
• Vehicles (current market value, not purchase price)
• Business ownership stakes
• Valuable personal property (jewelry, art, collectibles)

What Counts as a Liability?

• Mortgage balance (remaining amount owed)
• Car loans
• Student loans
• Credit card balances
• Personal loans
• Medical debt
• Any other money you owe

Average Net Worth by Age (US, 2024)

• Under 35: $76,000 average / $13,000 median
• 35-44: $436,000 average / $91,000 median
• 45-54: $833,000 average / $168,000 median
• 55-64: $1,175,000 average / $213,000 median
• 65-74: $1,217,000 average / $266,000 median

Note: averages are skewed by the ultra-wealthy. The median (middle value) is a better benchmark for most people. Don't compare to averages — compare to medians.

What Should Your Net Worth Be? The 'Millionaire Next Door' Rule

A classic benchmark from the book 'The Millionaire Next Door': Expected Net Worth = Age × Gross Annual Income ÷ 10. If you're 40 earning $70,000/year, target net worth = 40 × $70,000 ÷ 10 = $280,000. Above that target? You're a 'Prodigious Accumulator of Wealth.' Below? Time to accelerate.

Why Net Worth Matters More Than Income

A $200,000 income with $500,000 in debt and zero savings is financial fragility. A $60,000 income with $400,000 in assets and $50,000 in debt is financial strength. Net worth determines how long you could survive without income, whether you could handle a $10,000 emergency, and when you can retire.

How to Grow Your Net Worth

1. 1Increase income — more earnings = more to invest
2. 2Reduce debt aggressively — every dollar of debt eliminated adds directly to net worth
3. 3Invest consistently — compound growth builds wealth exponentially over time
4. 4Avoid depreciating assets — cars lose value; index funds gain value
5. 5Track monthly — what you measure, you manage