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.
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.