The Millennial’s Guide To Net Worth
There is a social media fueled stereotype that depicts millennials (those born between 1981 and 1996) as being financially irresponsible young adults who refuse to give up their love of Starbucks and avocado toast long enough to save for retirement or buy houses. However, Schwabs 2018 Modern Wealth Index gave us an entirely different view of millennial’s financial situation.
It is estimated that 32% of millennials have laid out written financial goals for themselves, as compared to only 20% of generation x-ers. Millennials are also more likely to seek the advice of financial planners to help them reach their goals. So if millenials are so concerned with their finances then why are they delaying economy boosting activities like buying new cars, becoming homeowners and getting married? We can solve that mystery with one word; debt.
Millennials have a staggering amount of credit card and student loan debt, far more than the generations that came before them. Polls indicate that 75% of all millennials carry a significant amount of debt. If they graduated from college or went on to graduate level or above education they left school with anywhere between $30,000 and $100,000 worth of debt.
What Is Net Worth And How Can It Lead To Financial Freedom?
A daily budget can help you live within your means, but tracking your overall net worth can give you a truer big-picture snapshot of your financial health. A person’s net worth is simply the calculation of assets minus debts or liabilities. Ideally our net worth should be a positive number. Sadly, many Americans have so much debt that they currently have a negative net worth. Watching your net worth grow as you track it can be highly motivating as you strive to reach your financial goals. In order to calculate your net worth we need to define which assets and liabilities should be included. Just to make things extra confusing, financial advisors differ on a few key points on what should be included in your net worth assets and debts. You will have to choose the method that makes the most sense for you.
An asset is the sum of your cash and the cash equivalent of all things you own that have value. Cash equivalent items are things you could sell today if you needed the money. This can include real estate investment properties, cars, jewelry, precious metals, collectibles, artwork and other things of value. The key factor that confuses many people is weather or not to include your home as an asset if it is not paid off. You can choose to leave your mortgaged home off of your asset list completely and only count it as a debt if you wish to take a more conservative approach to calculating your net worth. Another school of thought adds your personal home as both an asset and a liability assuming you have some equity in the home.
Debt, often referred to as liabilities in the finance realm, includes credit card debt, medical debt, student loans, car loans and home loans. When you start listing your debts and subtracting them from your assets, that is where you really start to see an accurate presentation of your current financial situation.
If this is your very first time calculating your net worth, you might want to go old school with a pen and paper making your two lists. As your net worth tracking evolves you can use a spreadsheet, software or even a mobile phone app to help you keep track of your net worth. Seeing your results presented in a visual graph is very eye-opening and can help motivate you to reach your financial goals.
How To Set Financial Goals That Increase Your Net Worth
Some common financial goals are; to get out of debt, to retire early or to retire with a specific amount of money, or to become financially independent (meaning you do not have to rely on loans or credit cards to live your life comfortably). In order to reach these goals you’re going to want to focus on moving the dial in the right direction on the scale of your net worth.
Set small spending and budget goals that help you increase your net worth a little more each month. Here are some ways to raise your net worth quickly:
#1. Live within or below your means. This simply means you need to set and follow a budget that doesn’t allow you to spend more than you make each month.
#2. Eliminate high interest credit card debt first and then move on to lower interest loans.
#3. Make more money. If you are able to move ahead at work to increase your salary or work extra hours that is a good place to start. If that is not possible, you can start a side hustle in your free time (such as dog sitting, lawn care, selling crafts or services you are skilled at).
#4. Increase your savings. Make sure you have an emergency savings fund of at least three months living expenses. Max out tax free retirement savings like IRAs or 401Ks.
#5. Once you have debt paid down and an emergency fund started, you can start investing your extra money which will have a higher rate of return than a standard savings account.
Tracking your net worth monthly will help you reach your financial goals faster. When you are no longer swimming in debt life will be a lot more enjoyable with plenty of opportunity to spend on experiences like travel, home ownership, marriage and other fun adventures.
