So, last week, I went through a bit of a “money crisis” where I was sitting at my laptop, reading over personal finance blogs and I could feel the anxiety creep in. I’ve attended the Financial Blogger Conference for three years now and pretty familiar with the bloggers in this niche, they’re all great people- but if you didn’t know, one trait of this lot is that they like to put it all on the table when it comes to their money.
Many personal finance bloggers will update their readers on their debt payoff, monthly savings goals and show screenshots of their net worth spreadsheets. If you haven’t noticed, I typically don’t do this. The most I’ve ever disclosed is my monthly budget, and that wasn’t too revealing.
I love seeing everyone’s numbers- to me, it’s a helpful peek into their lives to keep me motivated and see what’s actually going on in the world as opposed to what you’ll hear on the news or read in a magazine. (A great feature on this is Consumerism Commentary’s “Naked With Cash” series) Real people, discussing real finances- though sometimes it can be a bit overwhelming. As I was looking over other frugality and personal finance blogger’s net worth, I realized I hadn’t calculated mine in awhile, and I’d assumed it was deplorable by comparison.
One easy way to estimate how you “stack up” financially to others in your age/income group is to calculate your net worth.
To calculate your net worth, you add up your assets and subtract your liabilities (debts). Tally up the value of all of the things/accounts that you own – the value of your home, the value of your cars, the value of your savings, investment accounts and a retirement account – those are you assets. Then tally up your liabilities- any money owed (debt) on student loans, credit cards, mortgage, car payments and subtract that total from your assets. The resulting number is your net worth.
So, back to the panic I was feeling- I suddenly had this lingering question- “How much should I have by age 30?” and “How much should I be worth in my 20’s?” I started Googling, going over my finances and just feeling rather craptastic about myself. I found this handy Net Worth Calculator on CNN- but then I realized that “net worth calculators” are simply that- calculators. Just because it does the math and can estimate or calculate the figures, that doesn’t mean it’s socially accurate.
For me, at age 27 my “net worth” is be estimated to be $8,525. based on the average worth of this age group.
The “average net worth” for my income is calculated at $35,375. (that’s a huge difference!)
Instantly though, you can see the fallacy with net worth calendars- there is a HUGE divide between what is and what should be. On average, people in their mid-20’s have less than $10k in net worth no matter what their income, but the calculator adjusted a HUGE jump in anticipated net worth for this age group based on their salary.
Not only was there no difference in net worth for a $15,000 range in salary from $30-$45k, but there was a giant jump in the net worth estimate for anyone making $50k a year. To me, even assuming that people making $50,000 may have more available to save/invest, that’s a HUGE gap, even more confusing is the fact that “the actual” estimates for this age group didn’t move an inch.
Why the difference? For me, after I got over the gnawing feeling of what the calculator estimated I should be worth- I plugged in a few factors:
-The calculator doesn’t factor in years of previous income (like unemployment or time in school) and assumes you’ve made your current rate along the way.
-The calculator doesn’t factor in debts from student loans or other income drains that mean less money in the bank or to invest.
-For many full time workers (not to mention part-time workers or contractors), 401ks or other investment opportunities simply aren’t an option.
While I can calculate my full-time income going forward, I spent 6 years of my adult life in college to finish with a graduate degree. I made part time income- and when I attempted to factor that in with the calculator, the “estimated net worth” dropped to $1,250! So, the tool itself is simplistic- it cannot do complex calculations on changes in income, debts, or other assets.
Debt is a huge issue in America. Chances are, if you’re debt-free (or close to it) your net worth may not be negative, but it will be significantly lower than what the calculators tell you that you “should” be worth since you’ve used whatever cash on hand you had to pay off debts. For most people in their 20’s and early 30’s, your net worth may still be a negative number if you’re working on building your assets overall (with a student loan, mortgage, etc) but for now, it’s more of a debt than an asset.
What I would recommend is that you keep track of your net worth on a monthly or quarterly basis- why? Yes, it may make you feel crapalicious at first, as it did me- but, it can also be a solid kick in the tush to get moving since knowledge is power. When you know what you’re worth, you know exactly how to hit your financial goals.
The first month you track, you might want to sit next to a pint of Ben & Jerrys or a stiff glass of bourbon, but after you know for certain where you stand, you can track whatever progress you make- even if you only grow a few dollars at a time.
Each month, you’ll see how much you’ve payed down your debts, or saved towards your retirement. I was feeling pretty down about my networth, then I took a minute to actually tally up my assets and put them in a spreadsheet. When I got to see the “big picture” of what I’d accomplished, but also, could easily see the trajectory of where I was going if I kept up good financial habits, it suddenly made my outlook much happier than when I simply looked at CNN’s net worth calculator.