A household earning $250,000 a year can have a lower net worth than one earning $70,000. That's not a typo. It's one of the most misunderstood realities in personal finance: income is not wealth.
The median net worth of American families hit $192,900 in 2022, according to the Federal Reserve's Survey of Consumer Finances [1]. But the average was $1,063,700. That gap (more than 5x) tells you everything about how a small number of extremely wealthy households distort the picture. If you're comparing yourself to the average, you're comparing yourself to a fiction.
Net worth is the only number that captures your full financial reality. Not your salary. Not your 401(k) balance. Not the Zillow estimate of your home. All of those together, minus everything you owe.
30-Second Summary: Net worth = what you own minus what you owe. It's the single best measure of financial health because it captures assets, debts, and progress over time. Track it quarterly, benchmark against age-based medians, and focus on the trend line, not any single snapshot.
The Formula Is Simple. The Insight Is Not.
Net worth has a two-part formula:
Total Assets − Total Liabilities = Net Worth
That's it. Every asset you own (home, savings, investments, cars) minus every dollar you owe (mortgage, student loans, credit cards, auto loans).
If the result is positive, you own more than you owe. If it's negative, the reverse is true. Neither number defines you permanently. What matters is the direction.
What Counts as an Asset?
| Asset Type | Examples | How to Value It |
|---|
| Cash & Equivalents | Checking, savings, money market | Current balance |
| Investments | 401(k), IRA, brokerage accounts | Current market value |
| Real Estate | Primary home, rental property | Zillow/Redfin estimate or recent appraisal |
| Vehicles | Cars, motorcycles, boats | Kelley Blue Book trade-in value |
| Other | Business equity, valuable collectibles | Conservative estimate |
A common mistake: including your salary as an asset. Your salary is income (a flow). Net worth measures wealth (a stock). Income only helps net worth if you save or invest part of it.
What Counts as a Liability?
| Liability Type | Examples |
|---|
| Mortgage | Remaining principal balance |
| Student Loans | Federal and private balances |
| Auto Loans | Remaining balance |
| Credit Cards | Current statement balance |
| Personal Loans | Remaining balance |
| Medical Debt | Outstanding balances |
Include everything. That $1,200 credit card balance you plan to pay off next month? It still counts today.
A Worked Example: Maya and Tom, Age 32
Let's make this concrete. Maya and Tom are a married couple, both 32, with a combined household income of $118,000.
What They Own:
| Asset | Value |
|---|
| Primary residence (Zillow estimate) | $350,000 |
| Joint checking account | $4,500 |
| High-yield savings (Marcus by Goldman Sachs) | $15,000 |
| Tom's 401(k) at Fidelity | $42,000 |
| Maya's Roth IRA at Vanguard | $18,000 |
| 2018 Honda CR-V (KBB trade-in) | $16,500 |
| Total Assets | $446,000 |
What They Owe:
| Liability | Balance |
|---|
| Mortgage (remaining principal) | $285,000 |
| Student loans (combined) | $32,000 |
| Auto loan | $8,500 |
| Credit card balance | $1,200 |
| Total Liabilities | $326,700 |
Net Worth: $446,000 − $326,700 = $119,300
That positive number is driven mostly by home equity ($65,000) and retirement accounts ($60,000). Without the house, their "liquid" net worth (cash, investments minus all debts) is much thinner. This distinction matters, and we'll come back to it.
How You Compare: Net Worth by Age
The Federal Reserve's 2022 Survey of Consumer Finances provides the most reliable benchmarks [1]. Use the median, not the average. The average is pulled upward by billionaires and doesn't reflect normal households.
| Age Range | Median Net Worth | Mean (Average) Net Worth |
|---|
| Under 35 | $39,000 | $183,500 |
| 35–44 | $135,600 | $549,600 |
| 45–54 | $247,200 | $975,800 |
| 55–64 | $364,500 | $1,566,900 |
| 65–74 | $409,900 | $1,794,600 |
| 75+ | $335,600 | $1,624,100 |
Maya and Tom, at $119,300 and age 32, are tracking ahead of the under-35 median ($39,000) but below the 35–44 median ($135,600). They're in solid shape. And yes, it's normal to have a negative net worth in your twenties if you have student loans. The Fed data confirms many under-35 households are in exactly that position.
Here's an observation most net worth articles skip: your net worth will likely feel "wrong" at some point. You'll do the math and think $119,300 should feel richer than it does. It doesn't, because most of that number is locked inside a house you can't sell without moving and a retirement account you can't touch for 30 years.
Total Net Worth vs. Liquid Net Worth
This is the distinction that separates useful tracking from misleading tracking.
Total net worth includes everything, including your home.
Liquid net worth strips out illiquid assets (your house, retirement accounts with withdrawal penalties, your car) and shows what you could actually access in an emergency.
For Maya and Tom:
- Total net worth: $119,300
- Liquid net worth: $4,500 (checking) + $15,000 (savings) − $1,200 (credit card) = $18,300
That's a very different number. And it's the one that matters if Tom loses his job next month.
Both numbers are worth tracking, but don't confuse them. Your home equity is real wealth. It's just not available wealth.
Why Net Worth Matters More Than Income
The correlation between income and net worth is only about 0.50, according to wealth researcher Lisa Keister [4]. That means a high income explains roughly half of wealth accumulation. The other half comes from spending habits, saving rates, investment returns, and debt management.
You've met the archetype: a surgeon earning $400k with a $1.2 million mortgage, two leased BMWs, private school tuition, and a net worth that's barely positive. The finance world has a term for this: HENRY (High Earner, Not Rich Yet). There's nothing wrong with high spending if it's intentional, but these households are one job loss from a crisis.
Meanwhile, the teacher couple earning a combined $95,000 who bought a modest home, drove used cars, and maxed their 403(b) accounts for 20 years may have a net worth above $800,000.
Income determines your potential. Net worth reveals what you did with it.
If you want to understand how much of each paycheck to save and invest, start with the priority waterfall that builds net worth systematically rather than guessing at a percentage.
How to Track Your Net Worth
You don't need to obsess over this number daily. Quarterly is plenty. Annually works fine. The goal is to spot trends, not react to every stock market dip.
Free Tools That Work
- Empower (formerly Personal Capital): Best free net worth tracker. Connects to bank accounts, brokerages, and mortgage servicers automatically. Updates daily.
- Monarch Money: Paid ($9.99/month), but excellent for couples who want shared dashboards. Worth it if budgeting and net worth tracking happen in one place.
- A spreadsheet: Honestly, a Google Sheet you update every quarter works. No syncing issues. No security concerns. Just you and a formula.
Use our net worth calculator to run your numbers right now. It takes about five minutes.
What to Watch
Track the trend, not the number. A net worth that went from −$15,000 to +$40,000 over three years is more meaningful than someone who inherited $200k and hasn't grown it since.
Life is messy. Divorces split net worth in half overnight. Inheriting property can double it without any effort on your part. A medical emergency can crater it. The trend across years smooths out these shocks and shows whether your financial habits are working.
Common Questions (Answered Quickly)
Should I include my home? Yes, for total net worth. But also calculate liquid net worth separately. You need both numbers because they answer different questions.
Does my income count as an asset? No. Income is a flow. Assets are what that flow has accumulated. A river isn't a lake.
Is negative net worth bad? It's common for anyone under 30 with student loans. The question is whether it's moving toward zero. If you have $45,000 in student debt and $3,000 in savings, your net worth is −$42,000. That's fine if it was −$50,000 last year.
How often should I calculate it? Quarterly hits the sweet spot. Monthly can make you anxious about stock market fluctuations that don't matter over decades.
Your Next Move
- Calculate your net worth today. List every asset and every liability. Use our net worth calculator or a simple spreadsheet. Five minutes.
- Separate total from liquid. Know both numbers. Total net worth shows long-term progress. Liquid net worth shows short-term resilience.
- Set a tracking schedule. Put a quarterly reminder in your calendar. Same day, every three months.
- Compare to age-based medians, not averages. The Fed's Survey of Consumer Finances [1] is the gold standard.
- Focus on the behaviors that move the needle. Pay down high-interest debt, increase your savings rate, and let compound growth do its work. Understanding how gross vs. net income works helps you see exactly where your money goes before it can build wealth. For a broader framework on organizing your money, check out how to build a budget.
Your net worth isn't a grade. It's a GPS coordinate. It tells you where you are so you can figure out where to go next.
References
- Aladangady, A., et al. (2023). Changes in U.S. Family Finances from 2019 to 2022. Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/publications/files/scf23.pdf
- Federal Reserve Bank of New York. (2024). Household Debt and Credit Report (Q4 2023). https://www.newyorkfed.org/microeconomics/hhdc
- U.S. Securities and Exchange Commission. (n.d.). Net Worth. Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/glossary/net-worth
- Keister, L. A. (2018). Income and Wealth are Not Highly Correlated. Work in Progress Sociology. https://www.wipsociology.org/2018/10/29/income-and-wealth-are-not-highly-correlated-here-is-why-and-what-it-means/
