Your current net worth is probably negative
For many of you in the veterinary field, your net worth is deep in the red.
With the magnitude of student debt any veterinary graduate faces, you are likely to have a negative net worth for a few years regardless of your income.
Let's start by calculating it: Net worth = Assets - Debts.
Assets include anything with cash value (bank accounts, property, investments), while liabilities include any types of loans (students, car, credit card, etc).
Net Worth = Assets - Debts.
It has nothing to do with how much money you make!
The higher your net worth, the wealthier you are
Based on the above, your net worth represents how wealthy you are. Again, it doesn't really matter how much you make.
In other words, the typical being rich perception, doesn't play a role here. Look at the example below, and let's assume both have been in practice for the same period of time, live in the same geographic location and had the same initial student loan burden; both have 5k in a checking account, and home equity of 50k.
Case 1 - "Rich" person example: makes 120k/year, has a big expensive house, the fancy expensive car, and an extravagant lifestyle. This person has no assets per say. On the other hand, there's a 50k car loan, 500k mortgage, 200k student loan debt, and barely no savings at the end of the month (retirement accounts worth 10k).
Case 2 - "Normal" person example: makes 90k/year, drives a 8yr paid-off car, is paying student loans aggressively and saving as much as possible for retirement (retirement accounts worth 50k). Has a 200k mortgage, 100k student loans.
From the outside, #1 is perceived as having a lot of money, right? Let's look at net worths:
Case 1 - Net worth is negative $685k; Case 2 - Net worth is negative 195k
While both examples have a negative net worth, you can really see who's wealthier at this time! It's a 490k difference!
Keep in mind this is a simplistic example. Unfortunately, case #1 is no different from what many people in this country (and world) do. There is debt numbness (to be discussed at a different blog post), and what matters it to impress your neighbor and workmates.
Income is not wealth. If you spend most of your income, there's nothing left to build actual wealth.
A higher income is not an advantage if you overstretch it and keep adding more and more expenses simply because you "can afford it"! Keeping up with the Joneses is real and must be avoided.
On the other hand, with all things being equal, a higher income makes it easier to build wealth. But as you saw with the example above, there are so many variables that it'll be hard to have the exact same variables at play.
That's exactly why personal finance is personal. Now, go ahead and calculate your current net worth. Then open a bottle of wine, enjoy it, and start thinking about how you're going to improve it!
And if you want to be able to not only see your net worth, but basically manage your financial life and plan for retirement, you should consider taking a look at Personal Capital (this is an affiliate link). It's a completely free tool!
You can link all of your bank accounts, credit cards, 401k, IRAs, car loan, student loans, etc, and evaluate your finances quickly and efficiently. Rest assured this works on a read-only process, and no assets are movable through Personal Capital. Give it a try!
[…] sure to read our post on net worth if you're not familiar with what it is! Bottom line, it tells you how wealthy you are (net worth = […]