It's hard to get a picture of your overall financial health because there are so many factors involved. How much you've saved for retirement? How much debt do you have? Do you have an emergency fund?
The one number many people point to, however, is your net worth – that is, what you own minus what you owe. Your net worth refers to your real estate assets, savings and debts, so you have a good idea of where you stand financially.
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To calculate your net worth, simply add up everything you own (your assets) and subtract everything you owe (liabilities). Assets may include the home, car, retirement plan, and more, while liabilities include a mortgage, student loans, and other forms of debt. If your net worth is deep in negative territory, it means you owe far more than you own, and you need to work to pay back your debt. On the other hand, if your assets outweigh your liabilities, you may find that you are very well off.
What makes net worth special, however, is that there is no single measure of success. Your net worth depends a lot on your individual circumstances, so it's hard to target a specific number. A formula that can help you, however, is described in Thomas Stanley and William Danko's book The Millionaire Right Next Door. There is a formula for this, which is to multiply your age by your annual income before taxes and divide the result by 10. So if you are 40 years old and have an annual salary of 50.000 U.S. dollars, you should have a net worth of around 200.000 US dollars to aim for.
Even if you have a target value in mind, it's human nature to measure yourself against others. While it's important not to focus too much on looking better than your peers, sometimes it's helpful to see how you compare to others in your age group.
Your net worth vs
According to the Federal Reserve's 2016 Survey of Consumer Finances, the average net worth of U.S. households was 692.100 US dollars.
This number may come as a shock, but it doesn't tell the whole story: this picture is skewed by super-rich households who have millions of dollars. The median paints a more accurate picture of the typical American family because it's in the middle; half the households have more and the other half have less. The Federal Reserve found that the net worth of the median U.S. household is about 97.300 US dollars.
The survey also broke down the results by age group, ranging from those under 35 to those over 75:
| Age group | Median net worth per household | Average net worth per household |
| under 35 | 11.100 USD | 76.200 USD |
| 35 to 44 | 59.800 USD | 288.700 USD |
| 45 | 124.200 USD | 727.500 USD |
| 55 to 64 | 187.300 USD | 1.167.400 USD |
| 65 to 74 | 224.100 USD | 1.066.000 USD |
| Above 75 | 264.800 USD | 1.067.000 USD |
DATA SOURCE: THE FEDERAL RESERVE BOARD'S 2016 SURVEY OF CONSUMER FINANCES.
If your net worth doesn't quite match what others your age have, don't be discouraged; it doesn't necessarily mean you're financially off course. Rather, there are other things to consider to get a better idea of your overall financial health.
Other factors that are more important than net assets
Your net worth is only of limited value. For example, if you recently bought a house, you may owe hundreds of thousands of dollars on your mortgage. Thus, your assets would be negative. But that doesn't mean you're necessarily worse off than someone who rents, doesn't have a mortgage, and still struggles to survive.
Therefore, it is more important to look at the big picture. A single number can't tell you everything you need to know about your finances, but looking at a variety of factors can give you a better understanding of where you need to improve.
First, look at what types of debt you have, for example. Things like mortgages, car loans, student loans and credit card debt are all liabilities because you owe money. However, not all types of debt are equal. The debt of 100.000 U.S. dollars of mortgage debt, for example, is very different from 100.000 US dollars in credit card debt. High-interest credit card debt is one of the worst types of debt because it can cost you thousands of dollars in interest alone, and once it's paid off, you have little to show for it (unlike a mortgage, for example, which allows you to buy a home and build equity while you pay off the debt). So by reducing the "bad" types of debt first, you can improve your overall financial health.
The debt-to-income ratio is another important metric to consider. Often, yes, people think that as they make more money, their net worth will increase. However, that's not always the case – in fact, a quarter of Americans say the 150.000 US dollars or more per year that they are still living hand-to-mouth, according to a 2015 survey by Nielsen Global Consumer Insights. So more important than income alone is how your income compares to how much you spend each month.
To calculate your debt-to-income ratio, add up how much you spend each month to pay off your debt – this includes your mortgage, car loans, personal loans, student loans, credit card debt, etc. Then divide that number by your gross monthly income. Z.B. if you have 1.000 per month on your mortgage, $200 per month on your car loan, and $300 per month on credit card debt, your total monthly debt payments are 1.500 US dollars. If your gross monthly income is 3.500 US dollars, divide 1.$500 by 3.500 U.S. dollars, and your debt-to-income ratio is about 43 percent.
In general, you should aim for a share of about 20% or less. If you're trying to get a mortgage, most lenders will look for a ratio of less than 36% (though they can go higher if you're very creditworthy). However, a ratio of over 50% is typically a warning sign, as it means more than half of your income is going to debt payments each month.
Net worth is an important financial metric, but it's not everything. Therefore, it's important to look at the big picture to get a more accurate idea of where your finances really stand.
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