How to Grow Your Net Worth in Your 20s

I’ll admit it: I think net worth is a strange term. You can’t really put a dollar price on a person, right? The word “worth” carries emotional connotations, but net worth is a surprisingly simple concept. It’s simply the solution to an elementary-level math problem.

Following are actionable steps for growing your net worth in your 20s and setting yourself up for financial success.

1. Calculate Your Net Worth

Let’s start at the beginning: how to calculate your net worth. To determine your net worth, you need to know how much money you have and know how much money you owe. Look at your bank and brokerage account statements and take into consideration your assets (cars, houses, boats, etc.). However, it’s only an asset if you own it outright. If you have a car payment then that’s considered a liability.

Next, calculate your liabilities. The idea of looking at your student loan, car, or credit card statements might make your stomach turn, but it’ll benefit you in the long run (promise). Once you have a total number for your assets and a total number for liabilities, subtract your liabilities from your assets and the final number is your net worth. See? Simple!

If your net worth is lower than expected, don’t get discouraged. With the rising debt that most Americans have, net worth numbers are often different than what we anticipate. According to anonymized data from Personal Capital, the median net worth for people in their 20s is $7,798. What’s encouraging is that the median net worth for people in their 30s is $48,071, which is more than six times that of people in their 20s.

2. Build an Emergency Savings

I wholeheartedly believe in the importance of having an emergency fund. Here’s why: If you have an emergency and need to pay a large bill, where will that money come from? If you haven’t set money aside beforehand, you can easily find yourself in financial hardship. Try to save three to six months of living expenses in case you’re ever laid off, need to escape a toxic work environment, or have an unexpected expense.

Put the money in a high yield savings account and don’t touch it unless you have an emergency. Maintaining this fund will allow you to avoid falling into debt in case of a financial crisis.

3. Pay Down Debt

Paying off debt allows you to increase your net worth. My personal favorite way to pay down debt is the avalanche method. Write down all of your debts, listing them from highest interest rates to lowest, and how much the minimum payment is on each. Then calculate your total minimum payments to give you an idea of how much you need to pay every month to keep current. Begin paying extra on the credit line with the highest interest rate. Keep paying the minimums on the rest. Once you’ve paid off the debt with the highest interest rate, move down the list to the next one and start paying whatever extra you can towards it each month.

4. Prioritize Long-Term Investing

Compound interest is your friend and will help you exponentially when it comes to accumulating wealth. Your investments have the potential to grow at an accelerated rate because the interest is calculated based on both the initial principal and the accumulated interest from previous periods. An easy way to think about it is “interest on interest.”

You have multiple options for investment accounts.

Retirement accounts are often a good place to start because of the tax advantages. A 401(k) account is an employer-sponsored option; some companies will match contributions. If you’re self-employed, you may opt to open an IRA account.

Don’t focus on the number of accounts. Instead, sit down and make a plan to invest consistently. Even adding $100 monthly to a brokerage account will add up over time.

Also, when you’re making deposits, double check that you’re actively investing that money. Don’t let it sit in the account or else it won’t grow interest.

5. Use Free Tools & Resources

Yes, free! There are a ton of tools that are easily accessible on the internet. Budget spreadsheets, retirement calculators, and YouTube tutorials can all provide information about growing your net worth. Think of net worth as a way to determine if you’re on the path to achieve your financial goals.

You can use online financial tools to get a better handle on your money. My favorite tool is Personal Capital. I check it daily for tracking my net worth and my progress towards goals like retirement, debt payoff, and (yes!) saving that first $100k.

Get Started with Personal Capital’s Free Financial Tools