Men have a financial clock. We need to get our resources in order before time runs out (and it can run out surprisingly quickly!)
That’s why it is so valuable to consider your net worth. How much money do you actually have left, once you subtract your liabilities?
Unfortunately, many of us never consider our net worth. Instead, we plod through life, paying attention to our income and the money we have right now.
This approach is the wrong one. While income is important, what ultimately matters is how much money you’re able to save over the long term. It’s capital that produces the most income for wealthy people, not salaries or wages.
So, what is your net worth? How do you calculate it?
Calculating Net Worth
The basic definition of net worth is your assets plus your liabilities. In other words, it is what you own minus what you borrow.
Say, for example, a man owns a house worth $100,000 and has $20,000 in the bank. In this situation, his net worth is $120,000. But if that same man also has a $50,000 mortgage and $5,000 of credit card debt, then his net worth is just $65,000.
Many of the wealthiest and most successful people in the world measure their financial performance against their net worth, not their income. Net worth almost always becomes the biggest income generator after a certain size because of interest payments.
What To Include In Your Net Worth
Essentially, you should include anything you own in your net worth, minus small sundry items or consumables. For example, if you have a vehicle on the drive, include it. Its residual value adds to your net worth.
To value a classic vehicle, go to a specialist, similar to what you would do for a house. Professionals can give you a more accurate estimate of what the vehicle is likely worth.
You should also include all the furniture in your home, any appliances, and valuables like gold, silver, and jewelry. You could also include musical instruments you know you can sell, bicycles, computer equipment, and so on.
On the liabilities side, you should include anything that means you owe someone else money. For instance, you’ll need to add your mortgage, car loans, and credit card debt to this category. Mortgage debt still reduces your overall net worth because it represents the part of your home you don’t own outright.
Once you have a tally of all the items in your net worth, you’re ready to begin adding and subtracting. Your net worth can be negative if you owe more than you own, but this is rare.
Remember to include cash, portfolio assets, property, and crypto on the asset side.
Conclusion
Once you know your net worth, you are in a better place to see how you shape up financially. Ideally, you want around $150,000 at age 35 and $300,000 at age 45 for a decent retirement. Don’t worry if you are a little behind, though: there’s still plenty of time to make up lost ground.
