Not so long ago, nobody talked about their money. Your parents probably told you it was rude to ask people what things cost or how much they earned — but gradually, the lid is being lifted on the M word. In fact, younger generations are talking money more than ever, and the term on everybody’s lips seems to be ‘net worth’. Seriously, just go on TikTok. But what is net worth, and why should you care about it in your twenties (or thirties!)?
Your net worth is the value of all the assets you own, minus any liabilities. An easy way to remember it is: Own - Owe = Net worth (you know, just in case you get caught out by a mansplainer on Hinge). Your assets are things like cash and savings in your bank account, cars, property, shares, and maybe even valuables like art or jewelry. Things you owe might be student loans (sigh), outstanding mortgage balances, and any consumer debts like credit cards or personal loans.
Honestly? Today! Right now! You’re here, you’re interested in this stuff — let’s flippin’ go! Paying attention to your net worth from a young age is incredibly valuable, because it shows you the potential to grow your overall wealth over time. Plus, it can help you set and track big-picture goals, even if you’re working with a lower income.
Your net worth gives you a holistic view of your financial situation, and can help you reconcile the value of using debt to further your financial position. For example, taking on a mortgage can be stressful — it’s a big commitment, and seeing that big number owing on your balance can be scary. But from a net worth perspective, taking on that mortgage is often furthering your position. That’s because your net worth factors in the equity in your property, not just the amount you owe.
Let’s say you’ve got the following:
Your net worth is your apartment value, plus your car’s value, plus your savings, minus your mortgage and student loan balances. In this example, your net worth would be $90,000. That’s certainly more encouraging than staring at that $320,000 you owe on your mortgage and feeling deflated!
Your net worth figure can fluctuate as the value of your assets changes. That can be an active change, for example, if you add more money to your savings account, or it can be a passive change that results from a change in the value of your assets.
That means, if you own shares worth $10,000 and their value increases to $11,000, your net worth has increased without you lifting a finger! Sweet! However, the same can happen in reverse. If the stock market drops and your shares are now only worth $6,000, your net worth can plummet $4,000 instantly.
For this reason, it’s important to look at your net worth objectively, and not get too invested in the normal fluctuations of asset values.
You can keep track of your net worth all in one place using PocketSmith’s net worth feature. You can add and remove assets and update their values periodically. Checking in with your net worth once a month gives you good visibility of your progress over time.
Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients.
