I often wonder how well I’m doing financially in my life. I look around at people that are driving Mercedes and BMWs and sometimes I think that I’m way behind in the net worth category. But, do these people actually have a large net worth (assets minus your debts)? Or, are they deeply in debt and just trying to appear wealthy? There’s just not a good way to know!
As I was perusing CNN Money the other day, I realized that they had a helpful calculator related to the median net worth of U.S. citizens. After typing in my age (the spry, young age of 26) and my yearly income, this calculator gave me the average net worth for my age bracket and also the net worth for our household income.
Here’s the link, try it for yourself! http://cgi.money.cnn.com/tools/networth_ageincome/index.html
So, according to this CNN Net Worth Calculator, those that are between the ages of 25 and 34 have a median of $8,525. How do you measure up? When my wife and I first got married, we had a negative net worth (as many newly weds do I suspect). Why was it negative? College debt! Upon graduation, those degrees were worth absolutely nothing (I couldn’t take my degree down to the pawn shop and sell it – after all, it’s really only a piece of paper), and we still owed the government about $18,000! I think our net worth at that point was probably about -$15,000. I actually remember when we were all excited to have a positive net worth! We thought we were really big stuff. 🙂
Today, I am 26 and my wife is 24, and we have worked hard to get out of debt and build up a net worth with our savings, our paid-for vehicles, and our fixer-upper house. We aren’t anywhere close to saving up a nest egg that will sustain a retirement lifestyle, but we’re doing all we can to make sure we can retire someday without having to think about the cost of our next meal.
How Can Some People Have a Net Worth That’s Less Than $8,525?
Even though my wife and I have managed to develop a net worth that’s greater than the median, I think it would actually be quite easy to reside below the average net worth early in life. Let’s say you went to school to become a doctor. You may have just graduated from medical school and have over $100,000 worth of debt! That’s going to take a while to pay back! And, until you do, your net worth won’t be anywhere near positive, let alone $8,575.
Perhaps you bought a house in 2005 and the value has completely tanked since your purchase. You owe $150,000 on the loan and you house is only valued at $100,000. This puts your net worth at -$50,000 and you thought that you were making a financially wise decision by buying that property!
Getting back to the Mercedes and the BMW example, you might be driving these vehicles, but guess what, the value of these cars is reducing at a faster rate (initially) than the reduction in your loan amount. After two years, your car might be worth $20,000, but you still owe $25,000 in payments over the next 3 years! This scenario gives you a negative worth as well!
There are quite a few ways that a negative net worth can occur, so if you currently rank below the average, don’t worry about it! But, please do everything in your power to change your situation and improve the future of your finances. Good luck! I can’t wait to hear about your success!