Compare your net worth … or not

Many people want to know how they compare to others financially. Do they have as much saved up as other people their age? Are they ahead or behind everyone else? It is just one of those human traits we have.

There is an interesting Web site that provides a comparison to the average net worth based on age and income. Go to http://cgi.money.cnn.com/tools/networth_ageincome. Enter your age and income to get the results of the average net worth of others with the same age and income.

For example, the average net worth is $51,575 for a 40-year-old and $180,125 for a 60-year-old. If we look at income, the average net worth is $168,500 for someone earning $50,000 and an average net worth of $301,475 for someone earning $100,000. (Note that these averages include real estate.)

These numbers can give you an idea of how others are doing with their savings. If you are below the average, then maybe this exercise will be motivation to make a change. Or if you are above average, it may justify that you are doing the right things with your finances.

However, it really doesn’t tell us much about you personally. Are you saving enough to reach your goals? How much money you need is based on your own set of circumstances, standard of living and what you need to be happy. Those questions don’t get answered by comparing your net worth to an average.

Think of saving for retirement like traveling in a car. You want to get from point A to point B. It doesn’t matter if you get there in a 2002 Honda Accord or a 2014 BMW. As long as you get to point B and enjoy the ride getting there, then you did it right. The same is true for retirement savings. It doesn’t matter how you get there.

One person may need to save $50,000 a year to reach their retirement goals. Another person may only need to save $15,000 a year to achieve their retirement dream. So comparing your net worth to the average of others is not very helpful in terms of you being on track or not.

Knowing your net worth is extremely helpful though. It can help you stick to savings goals, pay down debt and watch your investments. Comparing your own net worth year-over-year is something everyone should do. You’ll see it grow which builds momentum to continue with good money habits.

Calculating your net worth is fairly easy to do. You can use financial software like Quicken, an Excel spreadsheet, or a piece of paper. First, make a list of all your assets. This includes checking and savings accounts, 401(k) or 403(b) accounts, home, car and anything else that has a value. Add up all of these values to get your total assets. Then make a list of all your liabilities. These include credit card debt, student loans, car loans, mortgage and anything else you owe. Add up all of these values to get your total liabilities.

To get your net worth, subtract your total liabilities from your total assets. Don’t freak out if your net worth is negative. This is common for younger people. It can also be a wake-up call and help you start paying attention to your spending.

Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.