Net Worth: How I stack up

Net Worth: How I stack up

I was perusing around CNN this morning and they had a little calculator that would compare my net worth with the average net worth of other’s around me. I’m really not a big net worth guy, but figured I’d check it out to see where I stand. Since I took my new job my income is somewhere around $80,000 when you add in bonuses and side jobs I do. Here are the results.

Net Worth By Age

Net Worth By Income

According to this survey, at my age I should have a net worth of $2,125 if I was average. According to my income though I should have a net worth of $244,100. This tells me a couple of things. 1) I probably make more than the average person my age. 2) This tool isn’t all that relavent to me.

As I mentioned above I’m really not a big net worth guy, in fact I don’t track my net worth. The only thing I track on this site is my retirement nest egg. The reason I don’t track net worth is that there is no defined formula for tracking it, and the the general rule of thumb is to throw a bunch of crap into your net worth that really isn’t worth anything. For example bankers and some finance professionals say that your net worth includes your cars, golf clubs, beanie baby collection, furniture, etc. While this stuff technically has value it’s not worth as nearly as much as you think and the worst thing is that 95% of stuff like that depreciates at a very fast rate. So unless you are going to sell it now, chances are if and when you do need to liquidate it (the point at where it’s true value is determined) it is probably worth 1/50th of the value most people would include in their net worth. I guess I lean more towards a Robert Kiyosaki view of net worth, where anything that isn’t putting money in your pocket is a liability and not an assett and should not be included in your net worth.

I also don’t try to keep track of my home’s value for many of the same reasons. First off the only time you can get an accurate value of your home is when you sell it. The price can go up and down a fair amount and you are just taking a wild ass guess ass to what your home’s value is. I tend to be pretty conservative with all of my projections and while I can pretty safely say I have $30k-$40k of home equity built up you will never see it on any of my financial statements. I’ll always need a place to live and yes homes do appreciate, but so do all the other homes you want to move into. My theory is if my house went up in value 20% in the time I lived in it and I want to sell it and move somewhere else – my new house is probably going to cost 20% or more than it would have when I purchased my last house so my net gain is $0 (I’d actually say it’s probably going to be a loss when the home selling fees are added up). Only time your house pays dividends is when you downgrade. So in my humble opinion your primary residence has no place in your net worth statement until you are retirement age and plan to downgrade your residence and even then you can only count the difference between the place you will be moving into and your current residence.

Back to the original graphs I don’t feel that average net worth by income is a useful measure at all. Income is a very small piece to the net worth puzzle and unless you include age, number of years working, etc it really doesn’t tell you anything. A more accurate questionnaire and survey would have been How many years have you been working and what is your average income over those years. This would tell you exactly where the average person should be given their earning power and number of years to put that earning power to work.

Important: Let me make the point that when it comes to financials you NEVER want to be average. Average means you blow all your money on useless things that provide no long term value to you, you rack up credit card debt, and never save for retirement until it’s too late and will spend your retirement years working crappy jobs just to pay the bills. So don’t look at a graph like this and think hey I’m right about average, please do yourself a favor and shoot higher.

  • I like the last point about not wanting to be average.

    I agree that a lot of comparative net worth and income statistics are not that meaningful to the individual (for a start they do not take into account personal circumstances.

    However I disagree with you on one point: a home is an asset. It may not be one that you would initially look to as part of a retirement plan (although it does have uses in that respect) but it is certainly very much part of a person’s financial net worth. To illustrate the point, consider two people:

    Person A: no assets, no liabilities – net worth of zero

    Person B: owns a home but has no other assets of liabilities

    Which has the higher net worth? If you view your home as a liability then Person B is worse off than Person A which is obviously not true (unless the home is a toxic waste dump).

  • zen

    The problem with the “median net worth for income” is that is itself vague – I just got a raise, and my networth is supposed to be 5x what it was at my old wage – I’d be interested in seeing what their formula/determination is.

  • Mike

    I fall into the exact same categories as you do and would agree that the comparisons are almost useless.

    I wish that at the very least they would compare you to people your same age WITH your same income. That might be half useful.

    You’re right about not wanting to be average. I keep reading everywhere that you need $500,000 to $1,000,000 at retirement, blah blah blah, but the average net worth is only $200,000 even at 55-64 years old.

  • A great point to drive home the point that median is unacceptable is that, from the first chart, a person at retirement will have a median of $200k. No way will that cover them. My father is nearing retirement and is 5 times higher than the median in both categories. I am still concerned about his retirement income covering all his needs.

    These charts would be mor accurate if they were combined… so they would have a category of $75k-$100k + 25-35. The problem would still be that these ranges are too big. $25 yr old making $75k vs 34 yr old making $100k should not have near as much Net Worth.

  • I also like your comment about not wanting to be “average”. However, I have to disagree with your views about net worth.

    * Although there are some differences in how one might go about calculating it, the major ones tend to be whether or not to include your house and maybe your vehicles. Practically speaking, I see hardly anyone (no one in my own experience) tabulating their personal assets (furniture, golf clubs, and the like).

    * Including or not including your home as part of your net worth – while I agree that you can never figure out the true price until it’s sold and any estimate can be high or low, I think you can definitely get a strong sense for what your house is likely worth based upon comparable sales in your area. In fact, in many subdivisions (big builders / production housing), there may be many houses almost EXACTLY like the one you already have, so comparison is easy. It’s then up to you to determine how conservative or agressive you want to be relative to those sales (ex: if you think your house is better or not as nice). For myself, I have decided to include it in my net worth calculations and TRY to be conservative about it based upon home sales in my area. Also, I don’t go around changing it every single month unless something significant has happened. In fact, one of our local realtors sends a monthly newsletter with all the home sales for our subdivision – so I don’t even have to do any work to make the comparison.

    * Your comment about a potential next house costing 20% more doesn’t really have anything to do with your net worth. The fact you buy a more expensive house does not change what equity you had in your old house…you will just be increasing your liabilities. No matter what, you will still have the equity.

    * Agree the CNN Money tool may not be the greatest and not meet your needs for what you are looking for. However, I may have stumbled across something that may be of more interest to you, called the “wealth score”. It basically asks you to look at your lifetime earnings compared to your net worth and suggests where you should be. I haven’t done it yet, but I will. It’s in my most recent post:

    I would encourage to reconsider net worth as a useful measure. Regardless of how you decide to calculate it, it provides you with a means to measure progress toward your goals. Of course, you are already doing that via your current process (retirement savings), but you may get a more comprehensive view if you consider some of the other things (ie – I don’t know if you also include checking, savings accounts, etc outside of retirement).

    If you end up using the wealth score, please let me know if you thought it was useful.

  • MFJ

    @brokenowrichlater – yeah ranges like that WAY to big – 25 versus 35 can be mean millions of dollars difference when it comes to retirement. Those 10 extra years of compounding can make or break a retirement – very good point.

    @pfodyssey – thanks for your thoughts – I have actually seen other pf bloggers discussing whether or not to put the value of their furniture in their networth calculation, but anyway I agree most people include investments, checking/savings, and real estate.

    I guess my biggest issue is that you always need a place to live and unless your current house appreciates faster than your next house you aren’t making any real ground UNTIL you downgrade (which may or may not happen) – so to automatically include primary residence Equity into your net worth is a mistake in my opinion. May give you warm fuzzies about your progress when in fact you’ve got an extra $300k on your balance sheet that unless you decide to live on the street you won’t be able to pull it entirely out and use it.

    Thanks for the link on the wealth score. I will check that out and do a follow up post.

    I guess in the end I tend to be pretty conservative and don’t count any eggs before they hatch. Same reason why I don’t include checking/savings/short-term debt in my calculations because they fluctuate so much and really mean nothing to me long term. Yeah my checking account went up $500 this month, but odds are next month it will go down. Until I actually extract money out and into a long-term vehicle that can’t be spent I don’t count it. I guess whichever method works best for you is the best, regardless I agree that tracking your wealth no matter how you do it is a very useful exercise.

    Thank you all for you insightful comments!

  • Being average is good in some respects (like the yield on your index funds) but it is certainly not good when it comes to the average American’s personal finance skills and understanding.

    I do track my net worth, but only use investable assets that do not include my primary residence.

  • I think I understand where you’re coming from re: home values. Maybe it depends on circumstances? For example, I’m looking at putting as much as a $250K down payment on my next house. That’s real money and I don’t see how I can exclude that from my overall net worth. You are correct in that it’s not entirely liquid…but it’s definitely there.

    Look forward to your post on the wealth calculator (I can’t find my darn social security statement).

  • karla (threadbndr)

    I actually calulate my net worth both ways – with the house/mortgage (when I HAD a mortgage – yeah!!!) and again without it.

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