Knowing your net worth is THE most important information that you can use to show that you are better looking, smarter, and can buy more stuff than the other fools around you.
Not really, but it is how we financially measure ourselves against our peers.
Calculating net worth for young people is a pretty shameful and daunting task, especially at the beginning of our working lives. You come out of college with tons of student loan debt and probably some ultra fun credit card debt, and then celebrate your $50,000 piece of paper by rewarding yourself with a shiny Debtmobile (new car)!
Take a look at my review of the free net worth tracking tool my wife and I use every day!
To top it off, you landed some entry-level position that WAY underpays you and met Uncle Sam through your paycheck deductions. I get it. It’s enough to bury your head in the sand and pretend that “net worth” is a fishing term for rich people.
If the above statement applies to you in any way, there is a good chance that you have a negative net worth as you are starting out. Here is what that really means (this is going to hurt):
A negative net worth means that you are literally worth less than nothing.
Sorry I had do to do that to you…I’m sure that you are a still a good person and stuff. Also, don’t take it too personally – I am just talking about the financial version of you. The silver lining here is that if you make smart decisions with your money your net worth will rise exponentially with time! However, you do need to pull your head out of the sand and try to get a good idea of what your net worth really is. It’s super easy.
Net worth is calculated by subtracting your liabilities from your assets. The resulting number = how awesome you are.
Assets are items that have tangible value:
Stocks and Equities
Liabilities are items that you owe on or cost you money. Here are some examples that apply to the normal Millennial:
Credit card debt
Again, I’ll make it super simple for you. Assets – Liabilities = Net Worth. It’s seriously that easy to calculate. It’s probably harder for most people to figure out what an asset or a liability is rather than do the equation! First and foremost, your car is not an asset if you owe more than it’s worth. Just because you can sell it does not mean that it will make you money, so please don’t trick yourself into thinking that you came out ahead financially on that financed new car. Cars are almost ALWAYS liabilities, unless they are really old or really awesome (think Ferrari).
I’m sure that you also noticed that mortgage was listed as a liability and your home was listed as an asset. Contrary to popular American belief, a mortgage and home are not the same thing. Home is the thing you live in, mortgage is the thing that sucks the life out of you for the next 30 years.
If you bought a $100,000 home and still owe $70,000, that property would in theory be a $30,000 asset – IF it would still sell for $100,000 or more. Your house DOES NOT need to be fully paid off to be an asset! The equity (money that you have paid toward the home) is your asset.
Side note: I tend to submit to Robert Kiyosaki’s way of thinking that a home is a liability because it doesn’t always make you money. Read “Rich Dad Poor Dad” to see what I’m talking about – the book is incredible! Unfortunately, accountants or finance majors that see this would probably want to jump through the computer and attack me for blasphemy, so for now just stick with the normal definition of assets and liabilities.
Take some time to sit down and figure out your net worth. Your future wealthy self will be glad you did! Check out the free tool that my wife and I use to track our bank accounts and net worth all in once place:
If you don’t like clicking on things like that ^^^, you can check out my Personal Capital review here. You’re welcome. 🙂
Question for you:
1) How important is your net worth to you?