How to calculate your net worth (and why it matters)

When assessing your financial health, there are a number of metrics you can use to determine how far you’ve come over the years.

Credit score, how much you’ve got left to pay off your mortgage or the size of your superannuation nest egg are great measures of your financial journey.

But the most important measure of all is your net worth, which represents how much wealth you have built over your lifetime, measured by assets such as your house, jewellery, savings and superannuation, minus your debt obligations. In other words, what you owe.

Understanding your net worth gives you clarity over your past financial decisions and can help you make better ones in the future.

It’s the one metric that gives you a clear snapshot of where you stand financially. For some, this will give you a sense of purpose as you head out the door to work every day and pay the monthly mortgage and bills.

What does net worth mean?

Your net worth is the difference between your total assets and your total liabilities.

Your net worth is the difference between your total assets and your total liabilities.. Picture: Getty

Think of it as a financial scorecard that gives you a figure of what would be left if you sold all of your assets and paid off all of your debts today.

For some, this figure could be positive, meaning that your net worth assets exceed your liabilities, while others will have a negative net worth, meaning that your debts are more than the assets you hold in your name.

REA Group senior economist Eleanor Creagh explains that your net worth is akin to a snapshot of your financial health.

“It’s the difference between what you own and what you owe. Knowing this figure helps you understand whether you’re moving forward, standing still or falling behind on your goals financially.

“It’s not just a number, it’s a reflection of your financial decisions, goals, and the security some may aspire to build for the future,” Ms Creagh says.

REA Group senior economist Eleanor Creagh says knowing your net worth will help you properly understand where you are in your financial journey. Picture: supplied

To calculate your net worth:  

. Write a list of your assets, including real estate, investments, jewellery and investments

. Work out the value of each assets and add the value together

. Write a list of your liabilities, including how much you owe on your mortgage, car loans, personal loans and credit cards

. Calculate the amount of each liability and add together to get the total amount of liabilities

. Determine your net worth by using the formula: Assets minus liabilities = net worth

What’s normal?

There isn’t really a ‘normal’ net worth. Some households will be worth more than those living next door, depending on factors like how much they earn, what they spend and whether their home has gone up in value.

There is no 'normal' level of net worth that you can compare to other households. Picture: Getty

Meanwhile, cost of living pressures also mean that everyone is taking a hit to their hip pocket.

If your household is trying to balance the rising cost of childcare and groceries while paying a mortgage, it’s going to be very difficult to be growing your savings.

However, there has been some analysis done on average net worth. According to analysis of Australian Bureau of Statistics figures the average Australian was worth about $733,000 at the end of the September 2023 quarter.

That figure comes from dividing the total household wealth ($15.31 trillion) by the voting age population (about 20.89 million).

The $15.31 trillion is made up of about $18.3 trillion in assets, subtracted by just over $3 trillion in liabilities.

Most of the holdings were in property, with the value of land and homes owned over $10.5 trillion – about 57% of the total assets.

Most holding wealth Australians have is because of property. Picture: Getty

According to government website Moneysmart, calculating your net worth helps you work out if your total assets outweigh your debts, and also understand the strength of your financial position.

What should my goal be?

Obviously, the goal will be to increase your assets while also decreasing your liabilities over the course of your lifetime. The more assets in your name, the greater your wealth.

If you do invest in property (or already have), the value of that property will go up over time.

Having said that, there’s no universal ‘ideal’ net worth because people have different income goals, life goals, and financial responsibilities, Creagh adds.

“That said, tracking your net worth relative to your age can be a useful benchmark," she says.

"It’s not about comparing yourself to others – it’s about making sure you’re on a trajectory that supports your long term financial goals and wellbeing."

Investing in property

Your home should be going up in value over the years that you own it. National home prices rose 0.27% in March, pushing values to a record high, according to PropTrack figures.

Prices are now 3.91% higher than a year ago and up a whopping 48% over the past five years.

“Beyond interest rates, structural factors are continuing to support price growth. Population growth remains strong, and Australia continues to face a significant shortage in new home completions,” Ms Creagh says.

“We expect prices to keep lifting over the coming months, but the rate of growth is likely to be more modest compared to recent years.

"With affordability still a major constraint, the impact of further rate cuts will be somewhat tempered,” she says.