When you go to the doctor for a routine checkup, your doctor checks your vital health signs by taking your blood pressure and checking your heart rate and respiratory rate. Unfortunately, we don't have such widely available diagnostic tools to check your financial health. But that doesn't mean you can't give yourself a financial health checkup.

In our prior post, What Is Financial Health?, we provided an overview of the six vital signs of financial health. Today, we're taking a deeper dive into the second vital sign: assets.

Assets – liabilities = net worth

Assets are things you own that have value. This can include:

• Cash in a checking or savings account
• Cryptocurrencies such as Bitcoin or Ethereum
• Investments in a brokerage or retirement account
• Your home and other real estate
• Collectibles such as jewelry, art or antiques
• Cash value of life insurance policies
• Your vehicles
• Precious metals like gold or silver

The amounts you owe (also known as liabilities) typically include a mortgage, car loans, student loans, credit cards and other debts. The difference between your assets and your liabilities is your net worth. If your total assets are greater than your total liabilities, you have a positive net worth. If your total liabilities are greater than your assets, you have a negative net worth.

For example, let's say you have the following assets and liabilities:

Calculating your net worth can help you get an idea of where you stand financially. But it's always useful to have a benchmark. 

You can find that benchmark in the Federal Reserve's Survey of Consumer Finances, which collects information about American families' income and net worth. According to the 2019 survey, the median net worth for all families is $121,700. However, those averages vary greatly when you break them down by age.

For 2019, the median net worth by age was:

• Under age 35: $13,900
• Age 35 – 44: $91,300
• Age 45 – 54: $168,600
• Age 55 – 64: $212,500
• Age 65 – 74 $266,400
• Age 75 and up: $254,800

Returning to our example above, if you're 30 and your net worth is $80,000, you're doing better than average. However, if you're 65 and getting ready to retire, a net worth of $80,000 might be cause for concern. You may not have enough assets to last throughout your retirement years. 

Whatever your age or net worth, the goal is to increase your net worth over time. 

Debt-to-asset ratio: an important financial metric

Another useful metric for evaluating your financial health is your debt-to-asset ratio. This ratio compares your total assets to your total liabilities and expresses it as a ratio. 

Debt-to-Asset Ratio = Total Liabilities ÷ Total Assets

So in our example above, your debt-to-asset ratio would be 0.68, or 68%.

The higher your debt-to-asset ratio, the more you owe and the riskier it is for you to take on more debt. However, like net worth, the ideal figure for this ratio depends on your situation. If you're a young adult who just bought your first home, your debt-to-asset ratio might be high. But as the value of your home increases, you pay down your mortgage, save money, and accumulate other assets, your ratio will improve.

How to improve your assets vital sign

What happens if you calculate your net worth and your debt-to-asset ratio and don't like the result? Here are a few suggestions for growing your assets and/or net worth.

Increase your income/decrease your spending

With more income or lower spending, you'll have more resources to dedicate to saving and building assets. 

You might consider:

• Asking for a raise
• Looking for a better paying job
• Getting a second job or starting a side hustle
• Tracking your spending and looking for ways to cut costs
• Sticking to a budget

Whether you earn more, spend less, or both, you will have more cash available to grow your assets and net worth.

Invest your money strategically

Having cash in the bank is great. But to grow your assets faster, you need to invest your money where it can grow. Investing allows you to grow your money more quickly over time, thanks to the power of compound returns.

Compounding simply means earning a return not only on your original investment but also on the money you've earned from past investments.

There are a variety of ways to invest and generate a return. You may invest in:

• Stocks and bonds
• Mutual funds or exchange-traded funds
• Real estate
• A startup business

Whichever method vehicle you choose, be sure to do careful research before investing your money.

Buy a home

For most people, buying a home involves taking on debt in the form of a mortgage. So why does homeownership help grow your net worth?

When you purchase a home, the payments you make go toward building equity – the difference between what you owe on your mortgage and what the home is worth. If your home appreciates in value, you can build equity even faster. Plus, you can usually get all of your money back and more when you sell it. 

Pay down debt

If you have a lot of debt – especially high-interest credit card debt – make a plan for paying it off. Increasing your net worth isn't just about accumulating assets but reducing or eliminating what you owe. 

The more money you send to the bank for your mortgage, student loan, car loan and credit card, the less money you have to save and invest for your future. 

Bottom line

Calculating your net worth and debt-to-asset ratio can be an eye-opening experience, particularly if your numbers aren't where you want them to be. But remember, there are just numbers you can work on improving in the future. If your asset column isn't as long as you'd like, let it motivate you to save and invest more. If your calculations show you're on track for financial health, be encouraged and continue what you're doing!