Important Assets Not Calculated In Your Net Worth
On paper, your net worth is one of the easiest calculations you can make. First, add up all your assets. Then, add up all your debt. Subtract the debt total from your asset total and that equates to your net worth. It’s a number you should know, or at least be able to estimate, and it’s good to check it every year. But there’s a lot that isn’t factored into your net worth that can mean quite a lot, and it’s important to take that into consideration. These things may seem to fall into one category or the other, but perspective can make all the difference!
Your education increases your net worth, even though it may not look like it. Very few investments offer the rate of return that continuing education does. Folks with a college degree earn on average about twice as much as those with just a high school diploma over the course of their lifetimes. Unfortunately, your future earning potential doesn’t show up on your net worth, but your student debt does. If you’re trying to decide whether to go back to school or maybe take a few extra classes, the cost may seem intimidating since there’s no immediate benefit, but don’t let that dictate your decision!
Your kids can bring down net worth, while raising quality of life. Let’s face it: kids are expensive. The Department of Agriculture estimates that raising a child born this year to the age of 18 will cost about $250,000. But with tuition prices skyrocketing and kids staying at home longer than they have historically, the actual figure of raising children today gets much higher, much faster. In your net worth, this is only reflected as a constant drain on your savings: a net negative. Of course, it’s probably obvious to you the benefit your children bring to your life, but it might also be helpful to do some creative forward-thinking, like investing in a 529 plan, to keep the financial burden from becoming overwhelming.
Your home is your biggest investment, but doesn’t always show that in your net worth. Owning a home is a tricky thing when it comes to net worth; not only is it often your biggest asset, it’s often your biggest liability, too. When you’re early on in your mortgage, it may be frustrating when you see very little equity in your home, and maybe even a negative net worth. Just remember: even if you hadn’t purchased a house and instead continued to rent, that monthly payment would be out of your pocket anyway. Plus, it won’t be too long before the scale tips forward and your home starts to benefit your net worth as a whole!
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