What Is Net Worth and Why Does It Matter?
Net worth is the difference between what you own (your assets) and what you owe (your liabilities). It is the single most comprehensive measure of your financial health, providing a snapshot of where you stand financially at any given moment. Unlike income, which measures your earning power, net worth measures your accumulated wealth. Tracking your net worth over time gives you a clear picture of whether your financial decisions are moving you in the right direction.
Your net worth is calculated by adding up all of your assets, including cash, investments, retirement accounts, real estate, vehicles, and other valuables, then subtracting all of your liabilities, including mortgages, student loans, car loans, credit card balances, and other debts. The result can be positive (you own more than you owe) or negative (you owe more than you own). Most young adults start with a negative or near-zero net worth due to student loans, but should see steady growth as they pay down debt and build savings.
Your absolute net worth number matters less than the direction it is moving. Even if your net worth is negative (due to student loans or a mortgage), consistent upward progress means you are on the right track. Track your net worth quarterly or annually to see the trend.
Net Worth Formula
Average Net Worth by Age
| Age Group | Median Net Worth | Average Net Worth | Recommended Target |
|---|---|---|---|
| Under 35 | $39,000 | $183,500 | 0.5-1x annual salary |
| 35-44 | $135,600 | $549,600 | 1-3x annual salary |
| 45-54 | $247,200 | $975,800 | 3-6x annual salary |
| 55-64 | $364,500 | $1,566,900 | 6-8x annual salary |
| 65-74 | $409,900 | $1,794,600 | 8-10x annual salary |
| 75+ | $335,600 | $1,624,100 | Depends on income needs |
- 1Total assets = $15,000 + $50,000 + $80,000 + $300,000 + $25,000 = $470,000
- 2Total liabilities = $220,000 + $15,000 = $235,000
- 3Net worth = $470,000 - $235,000 = $235,000
- 4Debt-to-asset ratio = $235,000 / $470,000 = 50%
- 5Liquid net worth (excl. real estate/vehicles) = $145,000 - $15,000 = $130,000
How to Increase Your Net Worth
Strategies to Grow Your Net Worth
Assets and Liabilities to Include
- Assets: Checking and savings accounts, CDs, money market funds, investment accounts, retirement accounts (401k, IRA, Roth IRA), real estate (current market value), vehicles (current market value), business ownership equity, HSA balance, cryptocurrency, valuable collectibles, cash value of life insurance
- Liabilities: Mortgage balance(s), home equity loans/lines of credit, student loans, auto loans, credit card balances, personal loans, medical debt, 401(k) loans, back taxes owed, any other outstanding obligations
- Generally exclude: Personal belongings (furniture, clothing, electronics) unless individually valuable, future income or Social Security benefits, contingent liabilities you may or may not owe
Net Worth Tracking for Canadians
Canadian net worth calculations follow the same principles. Include RRSP, TFSA, RESP, and pension values as assets. Include mortgage, line of credit, and student loan balances as liabilities. According to Statistics Canada, the median net worth of Canadian families in 2023 was approximately $400,000, heavily influenced by real estate values (especially in Toronto and Vancouver). Canadian homeownership rates are approximately 66%, making real estate the largest asset for most Canadian families. Track your net worth in Canadian dollars and use the same quarterly or annual review cadence.
Net worth is a useful metric but has limitations. It does not account for future income potential, the liquidity of your assets (a house is hard to spend), tax liabilities on retirement accounts, or insurance protection. A complete financial picture requires considering net worth alongside income, cash flow, insurance coverage, and estate planning.
