Counting it correctly
Net worth is assets minus liabilities. Count cash, retirement and brokerage accounts, and home equity. Subtract every debt, including student loans and the car loan. Value a car at what a dealer would pay for it, or leave it out. Remember that a pre-tax retirement balance is not all yours, since a share of it belongs to future taxes. Update the figure quarterly. Checking it daily only teaches you to flinch.
Why this number matters
At a historical average return of seven percent, a hundred thousand dollars earns about seven thousand dollars in an average year without any help from you. The first hundred thousand is slow because nearly all of it is your own contributions. Someone investing ten thousand dollars a year at that return needs almost eight years to reach it, about five more to reach the second hundred thousand, and under four for the third. From here on, the pace is set less by your salary and more by time, costs and your behavior.
What to do at this point
- You check your fees. A one percent annual fee on a hundred thousand dollars is a thousand dollars a year, while broad index funds charge a tenth of a percent or less.
- You set a target split between stocks and bonds, write it down, and rebalance to it once a year.
- You roll old employer retirement accounts into one place.
- You review the beneficiaries on every account, because those forms override a will.
- You raise your liability protection. An umbrella insurance policy with a million dollars of coverage typically costs a few hundred dollars a year, and you now have something to lose in a lawsuit.
- You confirm that your emergency fund still covers three to six months at your current spending, not at the level of five years ago.
The ways people give it back
A stock market decline of twenty percent arrives every several years, and at this size it is a paper loss of twenty thousand dollars. The investors who sell at the bottom turn it into a real one. Decide now, in writing, that you will keep contributing through a decline. The other leaks are quieter: spending that rises with the balance, a concentrated bet on one stock or on your employer's shares, and loans to friends. A single session with a fee-only fiduciary adviser is a sensible check on your plan.
Note Tell almost no one the number. It changes how people treat you and does not change the number.
