What Is Net Worth?
Your net worth is your assets minus your liabilities. In other words, your net worth is a financial snapshot of how much you own. Financial experts recommend increasing your net worth to increase your financial health and security.
The median net worth of families in the United States is $192,700, while the mean is $1,059,470 million.[1]
Strategies like paying off debts, investing in stocks, and accumulating savings all positively affect net worth. Proper financial planning can help boost net worth over time without wrecking your lifestyle.
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3 Levels of Net Worth
There are three main buckets of net worth. A negative, neutral, or positive net worth. Let’s explore the difference here:
- Negative Net Worth: You have a negative net worth when your liabilities, what you owe, are more extensive than your assets, what you own. You will only have a net worth if you have debt, which can be hard to avoid as part of the natural course of progress.
Most college graduates enter the working world with a negative net worth because they have student loans. Additionally, consumer debt, like credit cards, personal loans, and auto loans, can weigh down your net worth. If you purchase a house, your mortgage can negatively contribute to your net worth, especially if your mortgage is more than the market value of your home.
- Neutral Net Worth: Having no net worth is not necessarily bad. A neutral net worth can represent significant financial progress. For example, perhaps you just worked to pay off all your debts. No net worth can represent a major launching pad to financial success regardless of how you got to zero.
If you don't have a positive net worth (more on that below), you should start working to accumulate assets like stocks, savings accounts, certificates of deposits, bonds, or real estate.
- Positive Net Worth: If you have a positive net worth, your assets' value exceeds your liabilities. In short, you own more than you owe. Many working professionals enter this category after they decide to eliminate their debts, save for retirement, stash away cash for an emergency fund, or begin investing.
One of the easiest ways to increase your assets is to purchase assets through retirement savings, like mutual funds, target date funds, or exchange-traded funds. Alternatively, you could save for a down payment and purchase your first house.
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Net Worth Calculator
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Your Net Worth
Wait! A negative net worth means that you owe more than you own. Increase your net worth by paying off debt quickly.
Nice Job! You have a breakeven net worth. Increase your net worth quickly by saving, investing, and paying off debt.
Great work! A positive net worth means that you own more than you owe. Continue to increase your net worth quickly by saving, investing, and paying off debt.
5 Assets for Increasing Net Worth
When stacking up assets to build your net worth, there are many different assets to consider. While vintage cars and rare art are assets, it's best to tackle the basics first. Here are five core assets that will boost your net worth:
- Savings Accounts: Stash your recommended emergency fund or slush fund into a high-interest savings account. Cash and cash equivalents are assets that add to your net worth. Alternatively, check out a high interest checking account.
You might also like Smart Money’s Emergency Fund Calculator or Slush Fund Calculator.
- Certifications of Deposits: A CD is a savings product offered by banks, credit unions, and other financial institutions. Its term can be as little as a couple of months to several years, and it often comes with a fixed interest rate.
Read more about the 7 types of CDs.
- Bonds: A fixed-income product like a bond can also contribute to building your net worth. A bond is an investment you own and is a loan issued by a corporation, government, or other entity that pays you a fixed or variable rate of return. There are many different types of bonds. Some bonds pay a higher interest rate than others. For example, a high-yield bond can juice your financial returns.
Learn how to earn interest income consistently with a bond ladder.
- Real Estate: Whether you are saving for a down payment to purchase your first house or looking for a great investment, real estate can help increase your net worth. By owning your home, you can accrue home equity (Read about how to get a home equity loan). Alternatively, you can invest in real estate through Real Estate Investment Trusts (REITs) or purchase a rental property.
Try these 5 Ways to Start Investing in Real Estate.
- Retirement Accounts: Saving for your future with retirement accounts can enhance your net worth. By saving early for retirement, you can build wealth by taking advantage of compounding interest and the time value of money. You can start by investing through a Traditional IRA or Roth IRA. Depending on where you work, you might also have access to a 401(k), 457(b), or 403(b) plan.
Take the headache out of saving by automating your personal finances.
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Popular Debt Reduction Strategies
One of the quickest levers to pull to increase your net worth is to pay off debt. Paying off debt is the fastest path to growing your net worth for many young professionals. By shedding consumer debt, you reduce what you owe and get closer to building a positive net worth. Here are the two debt reduction strategies:
- Snowball Method: The debt snowball method is among the most popular debt reduction strategies because of its evangelized and proven success. Researchers at Northwestern University have demonstrated that the snowball debt reduction method is the best method for paying off your debts in full. The debt snowball method advocates paying for your debts with the smallest first, regardless of interest rate. (Read how to apply the snowball method).
- Avalanche Method: The avalanche method is promoted by financial experts who focus only on numbers. Mathematically speaking, the avalanche method is the best method to pay off debts because it advocates for paying off debts with the highest interest rate first, regardless of balance. Because of this, you pay off your highest cost of borrowing first. (Read how to apply the avalanche method to your finances).
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Frequently Asked Questions
Financial situations differ tremendously. An improving net worth is a good net worth. If your net worth is negative, you pay off debt and buy assets. If you have no net worth, focusing on learning to invest can catalyze your need to amass a positive net worth.
The average net worth varies by age and how long you have focused on improving your finances. Retirement savings are a proxy for net worth. Here is the average 401(k) balance by age.
Building a positive net worth takes time. A high net worth follows with time for those who pay off mortgages and accumulate investments. How high you want to take your net worth will depend on your personal savings rate, lifestyle choices, and attention to increasing it over time. Starting your own business can help accelerate that process.
(1) Federal Reserve. Survey of Consumer Finances. Last Accessed January 15, 2025.
