Net Worth

So you didn’t win the lottery. Not surprisingly, neither did I.

Which is why I’m pecking away at my computer and teaching my readers—hi, Mom!—about Net Worth. Net Worth is legit the best … assuming it’s a positive number.

Net Worth is what you get when you make $10 and spend $9 … it’s what you keep. For your overall health and financial well-being, it’s actually a more useful metric than even income.

Over the last 20 years, I’ve had periods where I’ve earned more money (yay, money!) and periods where I’ve earned less money (grad school, maternity leave, now). Lots of things made the less money times easier—banks gave me lots of student loans, my husband worked (granted, he was a big reason I had to take a maternity leave, but fine, he paid for stuff)—but one very helpful thing was that I’ve always tracked how much I kept. And that number, even in the less money times, was always stable or even going up, albeit rather slowly at times.

Net Worth is literally the only reason I could quit my job, start a blog, and still eat. Net Worth is the means in living beneath your means. Hey, I didn’t call my company Live Beneath Your Income because … hypocrisy!

I know what you’re thinking. Why do you keep capitalizing Net Worth?

OK, maybe that wasn’t you (also: because it’s actually super important … if Fruit Ninja gets to be capitalized, Net Worth is gonna be capitalized).

So, what exactly is Net Worth?

Net Worth is basically all of the things you own minus all of the things you owe. It’s what’s left over if you sell everything and pay off everyone. You need to know this number. This tells you where you are financially right now … and that place could very well be InTheRed-ville or the neighboring town Negative-land. You need to know.

Take a piece of paper, draw a chart with two columns, and label one side Assets and the other Liabilities. Under assets, list everything you own THAT ACTUALLY HAS CASH VALUE. So no “Grandma’s good china” … unless Grandma was Marie Antoinette. Under liabilities, write out everybody you owe money to—debt.

I tend to be conservative with assets—“no” to the three-month supply of toilet paper I got at an ah-mazing deal—and expansive with liabilities—“yes” to the $20 we forgot to pay our piano teacher last spring. This does not take a long time. I know ’cause I just drew one out for you:

You might have noticed I tried to line up assets with their corresponding liabilities. To be clear, I don’t have anything against debt per se. I think debt can do a world of good. Especially for, say, a loan shark. Ha! Kidding.

No, really, I am fine with debt. As long as you use it for an appreciating asset (e.g. yourself). More on that in a future post. To finish up the math here, you add up everything on the asset side ($224,000) and subtract everything on the liabilities side ($189,500). In this hypothetical example, your Net Worth would total $34,500. See? Easy peasy.

And that’s not even counting the toilet paper.