Calculation Questions
What exactly counts as an asset?
Assets include: all cash and savings accounts, investments (brokerage, 401k, IRA, HSA), real estate (at current market value), vehicles (at current resale value), business equity (at conservative valuation), and other valuables worth more than $1,000 with a realistic market (jewelry, art, collectibles).
What exactly counts as a liability?
Liabilities include: all outstanding loan balances (mortgage, auto, student, personal), all credit card balances currently owed, HELOC balances, back taxes owed, 401(k) loans, medical debt, and any other money owed to creditors or individuals.
Should I include pre-tax or after-tax 401(k) value?
Most people use the pre-tax face value, which is what the account statement shows. This slightly overstates 'available' wealth for traditional 401(k) accounts (which will be taxed on withdrawal). Roth accounts are truly tax-free in retirement. For consistency, use the face value of all accounts and note the distinction separately.
Retirement and savings account valuation for net worth
| Account Type | Value to Use | Tax Note |
|---|---|---|
| Traditional 401(k)/IRA | Full balance (pre-tax) | Will owe income tax on withdrawals |
| Roth IRA/Roth 401(k) | Full balance | Tax-free in retirement |
| HSA | Full balance | Tax-free if used for medical |
| Taxable brokerage | Current market value | May owe capital gains tax on gains |
| Savings/checking | Current balance | No tax on withdrawal |
Benchmark Questions
What’s the average net worth by age?
Federal Reserve 2022 data (median/average): Under 35: $39,000 / $183,500 | 35–44: $135,600 / $549,600 | 45–54: $247,200 / $975,800 | 55–64: $364,270 / $1,566,900 | 65–74: $409,900 / $1,794,600. Medians are more meaningful than averages, which are heavily skewed by ultra-wealthy households.
Is $1 million net worth still rich?
At 65, $1 million supports approximately $40,000/year in withdrawals (4% rule). In many U.S. cities, that’s a modest but secure retirement. In high-cost cities (NYC, San Francisco), it’s comfortable but not luxurious. In low-cost areas, it’s genuinely wealthy. 'Rich' is relative; $1 million provides financial independence, not unlimited spending.
Strategy Questions
What’s the fastest way to increase net worth?
Simultaneously: (1) eliminate high-interest debt, which reduces liability rapidly, (2) invest consistently in tax-advantaged accounts, which grows assets with compound returns. These two actions attack net worth from both sides. The compounding effects of doing both simultaneously exceed either alone.
Should I prioritize debt payoff or investing?
Always capture employer 401(k) match first. Then: eliminate any debt above 8% before investing beyond the match. For 5–8% rate debt, split — half to extra debt payments, half to investing. Below 5%, invest while maintaining minimum debt payments. The crossover point is roughly 7%.
Debt vs. investment priority by interest rate
| Debt Rate | Strategy | Rationale |
|---|---|---|
| Below 5% | Invest > pay debt | Expected market returns beat low debt cost |
| 5–7% | Split approach | Close to breakeven; behavioral factors matter |
| 7–9% | Lean toward debt | Guaranteed payoff vs. uncertain returns |
| Above 9% | Pay debt first | No investment reliably beats 9%+ guaranteed return |
Common Scenarios
I’m 40 with no retirement savings — is it too late?
No. Starting at 40 with $2,000/month invested for 25 years at 7% produces $1.6 million at 65. You’ll need a higher savings rate than someone who started at 25, but financial independence is absolutely achievable from a standing start at 40. Don’t let the sunk cost of years not saved prevent you from starting today.
My net worth dropped during a market crash. What should I do?
Nothing, if you’re invested in diversified index funds. Market crashes are temporary for diversified long-term investors. The S&P 500 has recovered from every crash in history. Selling during a crash converts temporary paper losses into permanent actual losses. Hold, continue contributing, and the math will recover.
Start. Automate. Track monthly. Increase savings rate by 1% every year. That’s the entire playbook. No sophisticated strategies required. Consistency over years matters more than optimization of any single decision.
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