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What is net worth?

Updated: Mar 29, 2023

Welcome to our comprehensive guide on net worth. In this article, we will explore the concept of net worth, its importance, and how to determine if you are financially secure. We will also discuss the net worth of popular celebrities such as Scooter Braun and Liam Neeson, and compare net worth by age. By the end of this article, you will have a better understanding of tangible net worth and how to calculate your own.

What is net worth?

Image Credit to Julie Bang @ The Balance
Image Credit to Julie Bang @ The Balance

Net worth is the difference between your total assets and liabilities. It is a measure of an individual's, family's, or business's financial health and stability. Here's a breakdown of the two components of net worth:

  • Assets: Items of value owned by a person or entity, including cash, investments, real estate, personal belongings, and more.

  • Liabilities: Debts or financial obligations, such as mortgages, loans, credit card balances, and other outstanding payments.

By subtracting your liabilities from your assets, you can determine your net worth. For example, if your total assets equal $500,000 and your liabilities equal $200,000, your net worth would be $300,000.

What net worth is not?

Net worth has nothing to do with how much money you make. There are plenty of people out there that make a lot of money and spend it frivolously. While others make less, but spend wisely and save a significant amount. Spending wisely and saving money can really impact net worth quickly.

Why Should I Care About my Net Worth?

Understanding your net worth is crucial for several reasons:

  1. Financial Planning: Knowing your net worth allows you to set financial goals, develop a budget, and plan for retirement. It can help you identify areas where you need to save more or reduce spending.

  2. Debt Management: Monitoring your net worth can help you keep track of your debt levels and determine if you need to take action to reduce them.

  3. Investment Decisions: A clear understanding of your net worth can inform your investment strategy, allowing you to make better decisions about allocating resources and managing risk.

  4. Financial Security: Regularly reviewing your net worth can help you maintain financial stability and work towards building long-term wealth.

What Net Worth is Considered Rich?

There is no universal standard for determining what constitutes a "rich" net worth. Factors such as income, location, age, and lifestyle can all influence how much money is considered wealthy. However, a common benchmark is to have a net worth in the top 10% of the population for your age group.

For example, celebrities like Scooter Braun and Liam Neeson have net worths in the hundreds of millions, which would be considered very rich by most standards.

What Should your Net Worth be by Age?

Your net worth will typically grow as you age, thanks to career advancements, increased savings, and investments. Here are some general guidelines for net worth by age:

  • 20s: At this stage, focus on building a solid financial foundation, paying off student loans, and starting to save and invest.

  • 30s: Aim for a net worth equal to your annual income or more, as you progress in your career and continue saving and investing.

  • 40s: Strive to have a net worth of at least three times your annual income, while focusing on maximizing retirement savings and reducing debt.

  • 50s: By this age, you should aim for a net worth of around six times your annual income, with an increased focus on retirement planning and wealth preservation.

  • 60s and beyond: Ideally, your net worth should be about eight to ten times your annual income, ensuring a comfortable retirement and the ability to leave a legacy for your family.

Remember, these are general guidelines and can vary based on individual circumstances, financial goals, and lifestyle choices.

Tangible Net Worth

Tangible net worth is a subset of your overall net worth, which only considers tangible assets—those that have a physical form and can be sold or converted into cash. This includes items like real estate, vehicles, and personal belongings, but excludes intangible assets like patents, copyrights, and goodwill. To calculate your tangible net worth, simply subtract your liabilities from your tangible assets.

Steps to build your own simple net worth tracker

Getting yourself ready for a thoughtful, targeted strategy for tracking your net worth and the inputs associated with it should begin in either Mircosoft Excel or Google Sheets. That is entirely your preference as they have basically the same functionality. I have chosen to go with Excel as that was the most readily available software when I began my journey. Therefore, I’ll refer to some of the formulas and functions I built there, and again, most that them can easily be copied into Sheets.

After you have your document opened and saved (I save mine under the “Net Tracker” name for easy identification) you can begin tracking down all the pertinent information. Here is a quick list of the items I track:


  • Cash - checking and savings combined in my case

  • Current value of my vehicle

  • Stock(s)

  • 401(k)

  • Home

As for debt:

  • Student loans

  • Standard credit cards

  • Store credit cards

  • Car loans

  • Mortgage

From there, you add up the two separate categories, subtract debt from assets and you have your present net worth. Here are the formulas I have included in the image above.

How to increase net worth

None of the items listed below require you to drastically change your lifestyle. Some are opportunities to negotiate, put in a little effort by calling more than one bank, or being thoughtful when making a large decision.

1. Negotiate your mortgage rate to save big

2. Cook at home to save money

3. Negotiate your car loan rate

4. Negotiate your student loan rate

5. Trim the unnecessary to save just a little bit more

6. Ensure you get a company match on your 401(k)

Below are more details of how these 5 ways impact your net worth and how much money you could actually save!

1. Negotiate your mortgage rate!

For nearly everyone, their mortgage will be the largest single expense for most of their lives. Mortgages come with interest and interest can really add up over time. Warren Buffett famously said something like, there is no more powerful force in finance than compound interest. What this means to me is to get the lowest possible interest rate you are capable of. For our family that meant shopping around. We called our regular bank, a local credit union, asked our realtor for advice, then called more banks. Eventually, we landed on an amazing rate that worked well for us. With continued economic uncertainty we are able to track interest rates as they go down and will probably refinance, for the fourth time in our lives, to get an even lower rate.

Most of the time when you refinance you will pay a fee. If you can roll those costs into your future mortgage payments that is the path I suggest you take. Typically, even with the cost of refinancing you will be saving money in the long run. A change to your interest rate as small as .25% can have a lasting impact on the payment you make and your ability to pay the loan early and/or invest more money into your 401(k) or other investments.

Let’s look at what it would cost to purchase a home at the median home price in the US, $329,000. As of July 2020, the average APR on a 30-year fixed mortgage was 3.35% (historically low but we can still use it as an example). If you have a better than average credit score you could probably get this down to 3.1%. The difference of .25% over that 30-year term will save you $16,222! That is a large chunk of change that can come in handy if invested, used to pay down your mortgage early, or used to buy paint and improve your home’s value.

Here is a simple mortgage calculator or you can use the calculator below for a quick look at what your mortgage payment would be per month:

How to negotiate your mortgage rate

The best way to negotiate your mortgage rate is to call many different companies to find the best rate. Call your bank, call a few local Credit Unions, ask your friends who they use, just make as many calls as possible. Each will check your credit score, but none of it will hurt your score so it is a win-win for you. Make sure you compare each companies fees along with their rate. In the end, the time you spend finding a lower rate will save you so much money!

2. Cook at home more!

The pandemic has required many people to work from home and/or are asked to stay home from work via unemployment or furlough. In any of these circumstances, it provides the opportunity to save a little time since you don’t have to commute and that time can be applied back to cooking at home. Cooking at home can have two very nice effects, you save money, and can potentially make healthier meals to help you feel better.

I live in the midwest so the figures I present may not reflect pricing in your locale, but I hope it gives you a sense of the potential savings over time. In a typical month last year, our family would spend approximately $500 per month on food. That includes groceries and eating out. Since we were asked to work from home in March we have reduced our monthly grocery bill to $400, again this includes eating out. That $100 savings per month is equal to $1,200 per year! Because we have a very young son I know this type of savings will not last long, but the impact of cooking our own meals and eating at home more has been dramatic.

3. Negotiate your car loan rate!

This is the exact same story as your mortgage. Call around to as many financial institutions as possible. If you have a relationship with a financial institution that offers car loans, ask them. Even if you don’t just ask as many places as you can. You can even pit them against one another. If you get a lower rate at a bank/credit union that isn’t your regular bank/credit union, you can certainly ask your current banker to offer you the same rate. It would make managing everything easier, but the most important thing is to get the lowest rate.

The average used car costs $37,285. The average loan is 60-months and has a rate of 8%. In today’s market, you probably can get a better rate. If you lower your rate by .5% (rates are really low right now and with a car loan there is more room to go down vs a mortgage). In this example, you save $533 over the course of 60-months. To some that may not seem like a lot, but to be saving $100 a year isn’t something to scoff at.

4. Focus on your student loans!

For some, the student loans we have are larger than the car loans we have and in that case, I would flip #2 and #3. Student loan companies are getting more and more support from the federal government to provide flexible options around repayment. With interest rates going lower almost every day now might be the time to give your loan provider a call and get yourself a lower rate. All the same, principles apply as with your mortgage and car loans. The lower your rate the more you can save over time. You can also shop around for better rates.

In some instances you could even consider a personal loan if the rates offered are lower than the student loans you currently have. I would warn against this in most circumstances as a personal loan won’t have the same flexibility provided to student loan providers, but if you are simply looking for the lowest rate it is something to consider.

Let’s look at an example of the savings you can ring up here. The average student loan is $35,359, so very close to that of an average car. The average rate is around 4.5% and again, interest rates are historically low right now so you can most likely knock off .5%. With most loans due within 60-months, just like a car loan, you can save $480.52. At this point, the savings are really beginning to pile up and we have two more categories to go.

5. Trim the unnecessary!

Determining what is unnecessary can be very difficult. Do you keep Hulu and Netflix? How do you part with some shows and keep others? While these can be difficult decisions in some instances in others it might not be. For a while, we subscribed to a Yoga app on Roku. When we realized it wasn’t frequently used we cut it and saved $5 per month.

If you are looking to cut some unnecessary spending just take a few minutes to review your monthly expenses. Anything you see that looks like it can be cut, no matter how small, can really add up over time. After a review of our finances, we were able to cut an additional $50 per month.

6. Ensure you get a company match on your 401(k)

If you are blessed enough to work for a company that has a 401(k) and will match your contribution at some level then good for you. One of the most important things you can do while at that company isn't excel at your job. You need to ensure you get the full match your employer is offering for your 401(k). If they will match up to 3%, if you contribute the same, then you absolutely have to contribute 3%. In some cases that will feel like a lot of money. I would suggest you set up your 401(k) before you even get your first paycheck, that way you never know what it feels like to get that extra bit. I use this calculator to make sure I'm on track and to figure out the impact that a little extra contribution to retirement can have.

The long term impact of the 3% your company gives you can be tremendous. For example, the median pay in the US is approximately $40,000 per year. If you begin working at age 22 (that's an average of when blue and white-collar workers typically begin working) you will work for approximately 43 years and retire at 65. When you hit retirement you will have around $250,000. If you want to run the numbers for yourself below is how you calculate compound interest. You would calculate your compound interest every year with the previous years sum being the following year's initial principal.

A=P(1 + r/n)^nt

A = final amount

P = initial principal amount (in the example above the first year it would be $2,400)

r = interest rate (in the above example I assumed a safe 6% rate over 43 years)

n = number of times interest is applied per time period (in our example it is 1 time per year)

t = number of time periods elapsed (again this is 1 in our example)

In summary

For those of you adding up at home, the savings found here is $76,303.12 over the course of 30 years. In addition, you would have FREE earnings of $250,000 just by investing the minimum amount that your employer would match! Just think about how big that number could be if you had invested it in a 401(k) along the way? Or better yet, how big could it be if you invested in an employer-matched 401(k). You would be looking at over 6-figures added to your net worth in either the cash or investments section. All you have to do is make a few phone calls, buy more groceries vs take-out, and review your expenses once every few months, and cut the things you don't use or need.

I hope this article was helpful. If you have questions or ideas of quick and easy ways to increase your net worth please reach out and/or follow the blog.

Other Blog Posts you Might Like:

Want to grow your net worth with a money-making blog? Check out my step-by-step guide!

Want to learn about refinancing? Check out the basics

Like the net worth information above? Try out the mortgage calculator

Want to find a new way to make some extra cash? Check out the Side Hustle Guide

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