How to Calculate Your Net Worth (And Why It Matters More Than Income)
Your income is not your wealth. Your net worth is. Here is how to calculate it and what the numbers mean at every age.
Net worth = Assets minus Liabilities. Assets include savings, investments, retirement accounts, home equity, and vehicle value. Liabilities include mortgage balance, student loans, car loans, credit card debt, and any other debt. The resulting number — positive or negative — is your true financial position.
Net Worth Benchmarks by Age
Age 25: $10,000-25,000. Age 30: $50,000-100,000. Age 35: $100,000-250,000. Age 40: $200,000-500,000. Age 50: $500,000-1,000,000. Age 65: $1,000,000-2,000,000. These represent the 50th-75th percentile for US households. If you are below these, the gap is closeable with consistent saving and investing.
The One Number That Predicts Financial Freedom
Your net worth divided by your annual expenses = years of financial freedom. A $500,000 net worth with $50,000 annual expenses = 10 years. At 25x expenses, you can potentially retire. This single ratio matters more than income, job title, or investment returns.