There’s a reason why hearing the term “net worth” makes you think of celebrities. Google will have you thinking it’s only for the rich and famous. Beyoncé’s reportedly worth $440 million, which isn’t exactly a relatable number for most families. But, the truth is that net worth is a simple concept and it’s what I use to measure my own financial success as a money expert and founder of the company, Her First $100K.
After successfully saving $100,000 at age 25, I quit my corporate job in marketing to dedicate my life to educating people on how to make more, spend less, and feel financially confident. I love helping people feel financially secure, which is why I’ve partnered with Ladder to create a column dedicated to financial wellness. Figuring out your net worth is the perfect place to start.
To determine your net worth, first look at your assets. Investments, bank and brokerage accounts, retirement funds, real estate, and even personal property like vehicles and jewelry are all considered assets. After calculating the total value of your assets, subtract your debt. Student loans, credit card debt, mortgages, and car loans need to be included. The final number is your net worth.
The ironic aspect of net worth is that most people associate it with massive wealth, when in reality, the average net worth for people under 35 is $76,300. And get this: The median is $13,900. If you’re disappointed with your net worth—let’s put it into perspective because even though it’s easy to calculate, there’s a lot of nuance. According to the Federal Reserve Board’s Survey of Consumer Finances, there are two crucial aspects of net worth:
1. Education
Education is essential when it comes to growing net worth. The more education a person receives, the more likely they are to acquire wealth. This is consistent among all racial and ethnic groups. However, Black and Latinx families have a lower median family wealth than white families with the same level of education.
2. Investments
Black and Latinx families are also less likely to own various assets like retirement accounts and homes. Investments are a great way to make money. Utilizing investment accounts is how I was able to save $100K by age 25. But, I can also recognize my privilege. It’s my mission to help bridge the financial inequality by making financial education more accessible, pushing for equal pay, and ultimately, fighting against the systems that are designed to limit certain communities.
While it’s simple to calculate net worth, you have to also put it in context. There’s no shame in having a lower number than you expected or want. If you want to boost your net worth, I recommend tracking it and finding ways to create extra income while paying down debt.
Track your net worth
Once you know your number, it’s time to track it. Unless you love to geek out on numbers, you might not want to subtract your debt from your assets regularly. My favorite tool to use is online platforms to help keep track of your net worth. Companies like Personal Capital, PocketSmith, and YNAB help you learn how to handle your money and watch your net worth grow.
Her First $100K also offers (free!) tools for paying off debt, budgeting, lowering your monthly expenses, and negotiating at work.
Increase your net worth
I know, I know. This is a pretty obvious tip. That’s what makes it great. Look, you don’t need to find a second job if that’s not your goal. You can look at your budget, see if there are any unnecessary expenses or unused subscriptions, and reallocate those extra funds into an investment account. You can increase the percentage of salary going toward your 401K, ensuring you’re at least hitting the minimum contribution required to unlock your employer match, if it’s offered. Make sure your savings are in a high yield savings account. Those bank and brokerage accounts will create compound interest, helping you grow your money over time.
Compound interest makes your investments grow at an accelerated rate because the interest is calculated based on both the initial principal and the accumulated interest from previous periods. An easy way to think about it is “interest on interest.” If you can put aside an additional $50 to your IRA every month, then over the next 10 years, it will grow. You can’t afford not to invest because the alternative is losing money. Grow your funds by remaining consistent with your savings.
The false narrative that net worth is only for the top one percent keeps people from growing their wealth. Once you have a plan to grow your net worth, you can also begin thinking about life insurance, which is the logical next step so you can help to make sure your loved ones are taken care of. Ladder’s term life insurance calculator is another online tool that is extremely helpful. Once you figure out how much coverage you need, the application is 100 percent digital up to $3M and doesn’t require the loads of paper that you usually get from an HR person at a company.
I always encourage people to make a financial plan. It’s never too late to take control of your finances. So, grab your calculator, look over your bank statements, and start the process of creating a financial plan that works for you and your family, starting with calculating your net worth.
