For most Americans, net worth has seen tough times over the last few years. The Associated Press reported on December 8, 2011 that the average household net worth fell by 4% recently. What about your personal net worth, has it gone up, down, or stayed flat? Is it positive, or negative? What should it be and what does it mean?
The Basics:
Lets start with the basics - net worth is simply your assets (cash, investments, vehicles, housing, etc) less your debts (credit card, mortgage, etc). Most people can figure their net worth out in less than 30 minutes, yet few people seem to track the progress of their net worth.
Interpreting Net Worth:
Generally, a positive net worth is better than a negative net worth - the larger the net worth becomes the more financially secure you become. A lot of people look for rules of thumb (i.e., if I'm X years old and my income is $Yk then I should have a net worth of $Z); however, I've yet to find a rule of thumb that can be applied as a broad stroke and really make sense. I agree it is interesting to see exactly how you stack up. In fact, as I was recently preparing my own net worth calculation, I was looking for some net worth statistics just to see how my personal balance stacked up. Now, you can't simply look at the numbers reported here, you have to consider the time from which they represent, what was the market doing during that time compared to now etc.
If you're anything like me, then you too may find it's fun to see how you stack-up against these figures. But really, what does your net worth say about you? Well, here are some general interpretations:
Negative Net Worth -
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