Net Worth Averages by Age How Do You Stack Up Are You Leading or Falling Behind

Essential Insights

• Net worth provides a comprehensive overview of your financial standing, reflecting both your assets and liabilities, as well as how your wealth shifts over time.

• Measuring your net worth against national averages can help you understand your financial position relative to others and inspire you to set achievable money goals.

How Does Your Net Worth Compare by Age?

Curious about how your finances measure up to others in your age group? Instead of focusing on income or property values, the most accurate comparison is through your net worth—the difference between everything you own and all that you owe.

The Federal Reserve’s Survey of Consumer Finances, a leading source for U.S. household wealth data, highlights how net worth varies across different age groups. Here’s what the latest statistics show for median net worth by age:

Two main patterns stand out:

• Net worth generally increases as people get older.

• After retirement, net worth typically begins to decrease.

This trend is expected. As individuals age, factors like compound growth, higher earnings, and reduced expenses help boost net worth. By the time retirement arrives, many have paid off their homes and accumulated significant savings. However, once regular income stops, people start drawing down their savings, leading to a gradual decline in net worth.

The Importance of Net Worth and How to Figure Yours Out

Your net worth represents the total value of your assets minus your liabilities.

• Assets: This includes cash, balances in savings or investment accounts, home equity, and valuable possessions such as jewelry.

• Liabilities: These are debts like credit card balances, student loans, car loans, mortgages, medical bills, and taxes owed.

To determine your net worth, add up the value of all your assets, subtract your liabilities, and the result is your net worth.

Net Worth = Assets – Liabilities

Important Note

When calculating your net worth, exclude future income, stock options that haven’t vested, term life insurance, and items with little resale value. These do not accurately represent your current financial position.

A Holistic View of Your Finances

Net worth is widely regarded as the most effective way to assess personal wealth. As Peter Lazaroff, a financial advisor and chief investment officer at Plancorp, explains, it provides a far more complete picture than simply looking at income, savings, or assets alone.

Consider Jerry’s situation: he believes he’s worth $650,000 because his house is valued at $400,000, he earns $100,000 annually, and he has $50,000 in savings plus $100,000 in investments. However, his salary isn’t money he currently possesses, and he still owes $200,000 on his mortgage and has $50,000 in other debts. Factoring in these liabilities gives a much more accurate assessment of his financial health.

Another benefit of tracking net worth is its simplicity. Monitoring your net worth over time can help you see if your financial choices—such as reducing debt or increasing savings—are helping you move forward financially.

Effective Strategies to Increase Your Net Worth

Net worth isn’t just a static number—it’s a tool for monitoring your financial growth. Most financial professionals agree that the most reliable way to build net worth is by consistently investing and gradually paying down debt.

Investing, Compound Growth, and Debt Reduction

Nicole B. Simpson, founder and CEO of Harvest Wealth Financial, advises, “Make regular contributions to both your retirement accounts and after-tax investments. This approach allows you to invest smaller amounts over time, benefiting from compound growth.”

She also suggests eliminating credit card balances and large debts, especially before retirement, to minimize what you owe.

Peter Lazaroff recommends investing as the simplest path to growing net worth. He highlights the value of contributing enough to your workplace retirement plan to receive the full employer match, which can effectively double your contributions at no extra cost.

Lazaroff also encourages setting up automatic deposits into low-fee investment accounts and a high-yield online savings account. “Start with small, automatic contributions—amounts so modest you barely notice them leaving your account,” he suggests. “As you get comfortable, you can gradually increase your savings.”

Focus on the Long Term

Lazaroff also cautions against obsessing over short-term fluctuations. Sometimes, making decisions that temporarily reduce your net worth—like buying a car for work, investing in education, or taking a break to recharge—can pay off and increase your wealth in the future.

Often, these choices lead to greater financial gains over time.

Read the original article on Investopedia.