This semester we have talked about both assets (like investments) and liabilities (like loans). These play a major role in determining your net worth. Net worth is a way of stating how much wealth you have, and it does so by comparing your assets (your investments, money in bank accounts, home, car) to your liabilities (your student loan, car loan, mortgage, credit card debt). You just have to subtract what you owe from what you own.
When you consider what you own in this scenario, only account for things that have significant value (like a car or house) and do not depreciate (lose their value) too quickly. Things like your TV and furniture aren’t often included in your net worth because they lose their value relatively quickly. If you collect art or own expensive jewelry, those things should be included in your net worth because they generally increase in value over time.
Individuals who consistently increase their net worth are considered to be in good financial health. As you start to save and invest money and pay off your debts, your net worth will increase. It’s a good idea to calculate your net worth every so often to see how you’re doing. If your net worth is not increasing, you may not be putting yourself in a good position for retirement. We’ll talk more about retirement in a few weeks.
It’s much easier to start increasing your net worth once you have a full-time job. It can be tempting to accept the job that offers the biggest salary, allowing you to save and pay down debt more quickly. However, you also need to consider the cost of living where you would be located. If the cost of living is extremely high, you won’t be able to save nearly as much as you would if you lived elsewhere. You may be offered a position with a salary of $40,000 in Milwaukee or a position with a salary of $60,000 in Manhattan. Seems like going to Manhattan is a better option. However, the cost of living in Manhattan is significantly higher, and a $60,000 salary is equivalent to about $27,000 in Milwaukee. The cost of living will affect how much you can increase your net worth over time. Check out the Statistical Abstract of the United States to find city-level data on cost of living and much more. The 2014 edition is available at the Reference Desk.
Below are a few more resources to help you calculate your net worth as well as the cost of living in different cities across the United States.
Net Worth Resources:
Cost of Living Resources:
- MIT – Living wage calculator
- CNN – Cost of living calculator
- Bankrate – Cost of living comparison calculator
Note: This blog post is for informational purposes only. No content should be construed as financial advice.