While it might feel like your paycheck allows you to make the occasional splurge, there’s more to your financial life than the present moment. It’s important to check in on your finances so that you can adjust your spending, saving, and investing habits to make sure you’re on track for a more stable future. One way to better understand your financial health: Learn about your net worth and what you can do now to help it grow.

What is net worth?

Your net worth is the value of what you own, minus what you owe.

Knowing your net worth can help you understand your finances through a different lens. Your income matters and does factor into your overall net worth, but what matters even more is how you’re growing your savings—and using those funds to pay down debt and build long-term wealth.

“Your assets are everything you own including bank accounts, investment accounts, and the fair market value of real estate, automobiles, and personal property,” says Dustin Robbins, senior financial planner at Wealth Enhancement Group. “Liabilities include mortgages, automobile loans, student loans, credit cards and any other personal loans or debts.”

Understanding your net worth serves a few key purposes:

Evaluating where you stand financially. Making enough income to cover your monthly bills doesn’t mean that you’re building long-term wealth. Your net worth will tell you whether the value of what you own is moving in a positive direction over time and the factors that could be holding you back.

Diagnosing financial problem areas. Your net worth a helpful starting point for all your money-related choices, big or small. It can serve as a warning sign that you may be overextended in one area or underinvesting in another. If you aren’t where you want to be, that may indicate that it’s time to re-evaluate your debt management or investing strategy.

Achieving financial goals. Maybe you’re hoping to purchase a home or retire early. Your net worth is a good indicator of whether you’re on track to hit those goals, or if you need to make any changes to your financial habits to meet your ideal timeline. As a rule of thumb, many experts recommend calculating your net worth annually. Although, there may be cases when it makes sense to re-calculate more frequently—like after you’ve made a large purchase or investment.

The average American net worth by age

The median and mean net worth for all American families saw an increase between 2016 and 2019, standing at $121,760 and $748,800, respectively, according to the Federal Reserve’s 2019 Survey of Consumer Finances. This is the latest data available, and we’ll see new numbers in 2023.

Net worth is often measured in one of two ways: mean net worth and median net worth. The mean is the average net worth of all Americans. This figure may be a less accurate representation of the average American’s net worth because it can be skewed by extremely high or low outliers. The median net worth is the middle point between all Americans.

The Fed’s findings demonstrate a positive correlation between age and net worth, with most Americans seeing an increase in their net worth as they get older, earn more money, and have more time to save and invest.

Here’s how the average American’s net worth changes throughout their lifetime:

Once you’ve reached retirement age and begin to live off your savings and investments, you’ll likely see your net worth hit a plateau or decrease.

4 factors that can impact your net worth

Despite the positive correlation between net worth and age, your net worth can rise or fall at any point in your life based on your financial decisions.

“The two biggest factors you can control that will have an impact on your net worth are your spending and saving,” says Robbins. “For example, deciding how much to spend on a home and the amount you finance with a mortgage can have a substantial impact on how much money you are able to save.”

A few common factors that can help or hurt your net worth include:

Educational level: According to the Federal Reserve’s data, there is a positive trend between net worth and higher levels of education. Your net worth will likely increase with each degree you earn.

Monthly expenses: The amount you pay to cover your costs (housing, food, transportation, insurance, etc.) each month will impact how much money you have leftover to put in your emergency fund, invest, or pay off debt.

The state of your assets: This includes your bank account balances and the value of your investments.

The state of your liabilities: Remaining in good standing with your monthly mortgage, student loan, car, or credit card payments will also contribute to your net worth.

5 Tips to boost your net worth

Some factors that contribute to your net worth are out of your control, such as the performance of the stock markets, the housing market where you live, and interest rates on your debts. Still, there are moves you can make within your personal and professional life to grow your net worth.

1. Pay down debt

Increasing your net worth starts with eliminating financial obligations that could be dragging you down. Think: credit card debt, student loan debt, car loans, and more. However, you should be prepared for the potential downsides of paying off debt. It’s common to see a temporary drop in your credit score when you hit a zero balance on one or more of your loans.

2. Build your emergency savings

Saving for life’s curveballs can help you avoid taking out a loan or putting the charge on a credit card when you’re unable to pay for an unexpected expense. Depending on how much you need to borrow and what interest rate you qualify for, you can end up paying more through interest or fees.

“It’s important to take steps to protect, grow, manage, and transfer wealth,” says Marguerita Cheng, CFP professional and CEO at Blue Ocean Global Wealth. “Too much debt or a poor credit score can affect the cost you pay to service your debt. These can hurt your net worth because it costs you more to borrow money.”

That extra money can be used to buy or invest in assets that can appreciate over time, increasing your net worth.

3. Look for ways to increase your income

The more you earn, the more capital you have to invest and grow your net worth. So how can do that? One way is to increase your income by starting your own business, looking for a new job—or asking for a raise at your current one—or even picking up a side hustle.

Another way to boost your income is by switching jobs. Data from the Pew Research Center revealed that those who joined the Great Resignation saw their income increase; Half of the workers who changed jobs from April 2021 to March 2022 increased their income 9.7% or more, while the median worker who remained in the same job experienced a loss of 1.7%.

4. Increase your retirement contributions

As a rule, experts suggest saving 10% to 15% of your annual income for retirement. Even if you have to start small, saving early and increasing your contributions over time will ensure that interest earned on your savings has a chance to compound and that your net worth won’t plummet in your later years once you start dipping into those savings.

5. Invest

Giving your money the power to grow by investing in stocks, bonds, ETFs, and/or mutual funds is one way to make your money work for you. Fair warning: The stock market constantly fluctuates, and this can impact your investments. Even so, experts recommend playing the long game and leaving your investments alone when this happens.

“Your net worth changes over time as you accumulate assets and pay down debt,” says Robbins. “By increasing your savings, trimming your lifestyle spending and paying off debt, you will have a significantly positive impact on your net worth over time.”

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