Net worth is not self-worth

Marty was obviously delighted. The 12-year-old Down syndrome boy was all smiles on the Lullaby, a five-metre-long gliding platform at a Taupo playground. As my own kids played and did their thing, I spent the better part of a half-hour with Marty on that shared swing.

We were standing at each end, swinging, pushing the Lullaby higher, mimicking each other’s movements. At one point we lay back and tipped our heads backward over the ends, looking up at the clearing clouds on that perfect autumn day. He was unable to say much more than laugh, smile or give a thumbs up – yet that was everything.

All of which got me thinking, since this week I am looking at an important, simple measure of our personal finances: net worth. It’s basically the number you are left with when you take what you own and subtract what you owe. It’s the amount you would have in hand if today you sold everything you had and paid off all your debt. (Have a look at yours using our net worth calculator.)

What you’re worth (really)

Try as we might to separate the two, net worth often seems to get tangled up with self-worth. They are not the same – what you are worth in dollars does not equal what you are worth as a person. Don’t let anyone convince you otherwise.

Now someone like Marty, for instance, may never have a high net worth to speak of, at least without a lot of help from family and friends. He may never build much monetary wealth. Yet his worth as a person, however, is undeniable (I consider him a true teacher).

Of course those who make the rich list and other high-net-worth individuals may hold up their number as measure of who they are and what they’ve accomplished. But high-income earners can just as easily have a low net worth if they squander everything they have on liabilities (things that take money out of your pocket).

The thing is, many middle-income earners, especially while paying off debt or just starting on a mortgage, can find themselves with a negative or low net worth for decades.

It’s a challenge not to get negative about ourselves.

Get your number growing

So let’s clear this up once and for all: your actual number is far less important than the direction it’s heading. It’s growing your net worth that counts. Remember, the goal is to increase and protect your net worth over time.

Net worth is a focused snapshot of where you are today. It also allows you to easily see what a drag debt is. For example, racking up $2,000 of credit card debt means your net worth decreases by $2,000. The opposite is also true: every dollar you use toward paying off debt increases your net worth. The same goes for smarter debt like student loans. If you are paying off a mortgage, those dollars are gradually building your net worth and your equity (when they are not going towards the interest).

As you look at your financial picture, think about what it will look like in the future. One of my favourite things about the net worth calculator is the possibility to plan for future years. Ticking that box lets you figure out what financial shape you’ll be in, in 10 years and 20 years. And if you're like me and play with the numbers a bit, you can see where your dollars today can help most down the line.

A lot can be accomplished in the long term, but you need to see where you are in order to know how best to get ahead.