Surprising Average Net Worth of Americans—Why It Matters to You

According to the latest survey, the average net worth of American households is $692,100. The number shocked many consumers since their net worth is much lower than that.

The Federal Reserve said the super-rich distorted the national average. If the survey only considered the average households in the United States, then the median net worth is $97,300. They computed the median by getting the middle point where half of the households have less and the other half have more. The median net worth is a better indicator of the fiscal state of US households. Keep in mind that the figures came from the results of the Survey of Consumer Finances conducted in 2016. This is the most recent survey released by the Federal Reserve.

What is Net Worth?

Knowing your net worth is a vital aspect of understanding your personal finance. It is a great indicator of your ability to achieve your goals. Whether you want to save money for children’s college education, purchase a home, or be debt free, you need to be on the right path.

Net worth is a great way to determine the health of your finances. To find out what your net worth is, just take the total value of assets and subtract your total liabilities from it. Owning nice cars and living in an expensive home doesn’t always mean you have a high net worth. You should also consider your total debts that include student, car, and home loans, personal loans taken from realistic loans and other financial help that you need to pay.

Why Net Worth Matters

It is important to know how your net worth compares to the rest of the consumers in the United States. The number provides sort of a summary of the person’s financial habits and decisions. Experts call it the financial report card. A high net worth means you did a good job in making smart financial decisions, while a low net worth indicates the opposite. Monitoring your net worth can help you in achieving your long-term goals.

Since the Great Recession, the average household income has a steady upward trend. The stock market and home prices also improved year over year. At the same time, the average mortgage balances dropped. As a result, households experienced better median net worth in 2016. If you are below the median net worth, however, chances are you don’t know how to handle your finances properly. You should start making some changes that include increasing your income, reducing debt, and making better investments.

A good net worth differs from one person to another. It depends on one’s financial goals. If you want to save up for your children’s college fund, then you need to accumulate assets more aggressively due to the fast increase in the rate of education expenses.

Homeowners and stock market investments get a big boost to their net worth. Despite this fact, many American consumers are missing out. According to a survey, not enough people invest in a retirement plan. There was also a drop-in homeownership in recent years. This is because millennials prefer experiences over material things.

How to Improve Net Worth

Improving one’s net worth takes time. If you already have a set net worth as a goal, the following tips can help you increase it to achieve success:

1. Look at Your Liabilities

The first thing you need to do is to look at your liabilities. Look at how much money you owe and find ways to reduce or eliminate all your debts. Lowering your remaining balances is the first step to improve net worth.

One way to pay off debts faster is through refinancing at a lower rate. Look at a zero percent balance transfers for credit card debts. Just make sure that you can repay the total amount before the end of the promo to avoid paying interest.

You can also change the way you pay your debts. Instead of a monthly payment, consider making weekly or bi-monthly payments. It helps in reducing the balance faster, as well as the total interest you pay.  

2. Max Out Retirement Contributions

Some private employers offer matching programs to help their employees with their retirement funds. You should consider maxing out retirement contributions to get the most out of the matched amount. Retirement contributions have tax benefits and increase assets at the same time.

3. Maximize Income

The most direct way of increasing net worth is by increasing your income. You can ask for a raise from your boss if you have been working for the company for a long time. Make sure you are an asset to the company before asking for a raise, or else the request might backfire.

If asking for a raise is not an option, then look for new ways to earn money. You can find a second job, sell unwanted items, or start a home business. The options are limitless. Just think of how you can earn more through your skills and other assets.

4. Increase Savings

Most people ignore their savings account. By increasing the monthly savings rate, you can easily improve your net worth. One way to do so is by developing a habit of setting a portion of your paycheck into a savings account.

Look for a savings account that provides good interest earnings. Most banks nowadays offer about 2 percent annually in an ordinary savings account. For higher returns, consider getting a higher-yielding CD.

5. Reduce Overhead Expenses

The lower the expenses, the better your net worth. Review your monthly budget and find areas you can cut back. It can be canceling cable TV subscription or gym membership. If you own more than one car, consider selling one.  

When it comes to cars, buy one that will last for a long time. The car’s value depreciates over time, plus you should consider insurance premiums and maintenance expenses. You should drive a car until it requires replacing to save money and add to your net worth.  

6. Invest in Income-Generating Assets

If you have dispensable money, use it to purchase items that will provide you more income. You should have a balanced portfolio that can generate monthly or quarterly payouts. Make your long-term goal to maximize passive income. That way you earn more money without working too hard for it.

7. Purchase a House

Renting will not help boost net worth because you are shelling out money with nothing to show for it. By buying a home, mortgage payments go to developing equity that increases as the property’s value appreciates. You can also get back your investment and more if you choose to sell the house in the future. Getting a mortgage might not help in improving your immediate net worth, however, real estate investment will pay off in the end. Just make sure to make mortgage payments on time.

8. Consult a Professional

A financial advisor can guide you towards the right path and provide you with the latest info on how to make the most out of your money. Don’t be ashamed to ask for assistance and use all the resources available to you.

As you can see, knowing your net worth is important. It allows you to determine your current financial health and help you achieve financial success. With the right determination and foresight, net worth can secure help your financial future.