Do You Know Your Net Worth?

Do You Know Your Net Worth?

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:

401 K

Cash

Stocks and Equities

House

Liabilities are items that you owe on or cost you money. Here are some examples that apply to the normal Millennial:

Car Loans

Student loans

Credit card debt

Mortgage

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:

Screen Shot 2016-08-30 at 5.35.48 PM

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?

 

Live differently. Your bank accounts will thank me later. ~M$M

Don't miss another M$M post.

Sign up for the M$M newsletter to get new posts sent directly to your inbox when they go up on the site. As a bonus - I'll send you reviews of my favorite free personal finance tools and ways to make extra money with a side hustle!

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit

10 comments… add one
  • FI Investor Mar 3, 2015, 6:59 pm

    I love watching my net worth! It really helps me stay focused every single day on my finances and my financial future. Every financial decision I make I have my net worth in mind and it helps keep my net worth going up and to the right.

    • Millennial Money Man Mar 4, 2015, 12:30 am

      REALLY cool. If only more people were able to look at their financial picture the same way you do!

  • Harmony @ creatingmykaleidoscope.com Mar 6, 2015, 10:09 pm

    Well, you’ve inspired me to figure out our net worth.

    But anyways, I’ve been really enjoying your blog, so I nominated you for a Liebster Award:
    http://creatingmykaleidoscope.com/2015/03/06/2015-liebster-award/

  • FinanceValley Mar 22, 2015, 12:18 pm

    I believe it’s important to do a quick cost benefit analysis on every purchase you make. There’s a difference between frugal and wasteful spending. Do people really need all the clothing in their closet? Do you really need to go out to eat four times a week? If so, your net worth will never accumulate at a rate you’ll be happy with unless you have a massive salary.

    My wife and I love going out to eat so it’s worth it to us to do so a few times a week. With that said, we find deals, go during happy hour and spend wisely when we’re out. We also keep our thermostat at 60 degrees and rarely buy clothing (when we do, always at a deep discount!) to compensate for our entertainment dollars. People need to pick and choose how they spend, cut out the wasteful spending and put those savings into stocks/bonds. For the college student you mentioned, smart decision making can eliminate all that debt pretty quick and I hope new grads aren’t all buying new cars! Put that $400/month into paying off the student loan and pickup a vehicle at your local auction for less than $2,000.

    • Millennial Money Man Mar 22, 2015, 1:53 pm

      Super legit comment – agree on all points. I think a lot of college grads ARE buying the new cars. Can’t save them all unfortunately. My fiancé and I like to go out as well, but it’s rare because of work during the week. Funny you mention the thermostat – ours has always been up in the 78 range during the summer! We learned that from her parents to save money on energy. Thanks for reading!

  • Jacquelyn May 5, 2015, 9:28 am

    Personal Capital was the greatest organizer for me. Although, it is very sad to see my negative net worth, it’s fun to see it got cut in half since October!

    Net worth is critical, I am sure it would be scary to see how many people are in the red. The only thing I am unsure of, with building my net worth, is getting into investing so that my money grows bigger and faster versus a savings account.

    Great article, looking forward to your FinEd company!

    • Millennial Money Man May 5, 2015, 12:40 pm

      Thanks, glad you liked the article! The fact that you even KNOW your net worth is huge. Sounds like you are well on your way to growing it 🙂

  • CashFlowDiaries May 30, 2015, 2:03 pm

    awesome article! I love how you just put it so bluntly. I recently started tracking my net worth online and it has made me super motivated to keep it growing. All I think about now is ways to make it grow.

    Good stuff!

Leave a Comment

13 Shares
Share
Pin
Tweet
Share13
Email
Inline
Inline