Net Worth Updates: What They Are, Why They Matter, and When to be Skeptical
Updated: Jun 22, 2022
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Many influencers, including bloggers and video content creators, regularly post "net worth updates" to share with their audience how things have changed with regard to their finances from the last month, or whenever they did their last one. Personally, I enjoy these, as the bloggers who create them certainly put a lot of time and reflection to calculate everything and putting it into perspective for their readers.
Granted, many of them already do their fancy spreadsheets for their own record keeping, and sharing it with readers might be a chance to brag while drawing user engagement. However, it takes a lot of guts to share something so personal online, for all to see. So, I applaud those who are willing to do it for the right reasons and for the sake of transparency.
Sometimes though, those numbers can be inflated and can cause you to be self-conscious. Read on to learn how to discern between impressive content and castles in the air.
What are "Net Worth Updates"?
You may have seen those charts that show net worth by age, used by many as a social ruler to make them either feel better about their own position in comparison to their peers or feel inferior and use it as motivation to improve. Especially with the "net worth by age" lists.
Sam over at Financial Samurai has a good one, and the conversation in the comments is equally revelatory. If you went to college around the same age as me, the professors used to put either the names (gasp!) or student ID numbers on a paper outside a class and the score or grade for a test. It's kind of a similar concept to net worth, but on a more adult scale.
Net worth updates typically include a spreadsheet or list of the author's assets (cash, investments real estate) less their debts (mortgage, car loans, student loans). Mint.com has a great tool to look at your net worth over time, and how it changes over time, broken down by each account you have linked.
Why They Matter:
Net worth updates are crucial to understanding where you stand, financially speaking. If you have a negative or very low net worth, for example, you are at a higher risk of defaulting on your loans, falling into high-interest debt, and being subject to late fees, fines, and penalties.
If you have a higher net worth, you can probably plan your life out better. You can maybe take a sabbatical from work, leave an oppressive job, or take a trip with friends without throwing your plan off track. Use a net worth calculator to take a stab at knowing your number!
Liquid net worth is what really matters in cases like this. You can't exactly transfer the cash in a retirement annuity to pay off your credit card tomorrow, there is more to it than that.
Liquid assets are those which you have ready and easy access to, like cash, and brokerage accounts, after deducting what you own on loans, like your credit cards. That's truly the money you have to use for things like taking a trip, buying a new dishwasher, or making an offer at an auction.
Net worth updates also allow others to compare themselves to each other. Not that we should compare ourselves and feel inadequate because someone has $2 million more than us. The updates, in my view, can provide either validation that working towards FI is possible, as well as create a fire under us that we can get there too.
Many bloggers out there are normal people, just like their readers, in that they have (or had) regular jobs, live in modest homes, and aren't famous. This creates a level of relatability that makes those net worth updates more credible and inspiring. If they started from zero with setbacks, what's stopped you from getting to their level?
When to be Skeptical:
Back in the day, before the FIRE movement was well known and smartphones were in their early years, people used to "estimate" one's net worth by the fancy cars, homes jewelry, and other "assets" of the celebrities and our friends.
Well, we know now that wealth is what you don't see. The money in the bank, the trusts, the investment accounts, etc. Those are the people with a healthy net worth ratio. They are the ones with freedom, security, and options.
However, if you see people adding in home equity based on Zillow, estimated "business equity" and "expected inheritance" these are flags that the person may not be as credible.
The net worth of a company is not the same as the net worth of an individual or a family. And the fact that people count their inheritance as part of their net worth is beyond me. Is that money they are able to spend today? How do they know they will even get it?
"See that guy with the new Porsche? He must be LOADED!"
Those who are credible are the ones who create consistent and transparent spreadsheets and graphs, the ones who don't count the value of their minivan, and the ones who are humble about home equity if they even include it at all.
What I've learned is that it's better to underestimate than overestimate, because then when you really hit your number, you'll realize you actually have a buffer when the market swings.
Remember, if you want to get ahead the first thing you need to do is determine where you are, and where you are starting from. And that number is your net worth. When people ask "What's your number?" They might be trying to ask what's your target liquid net worth because that's what you can actually spend.
Net worth is just one tool in your kit though. Use these net worth updates with caution, and try to learn the story behind the numbers. Did they dollar cost average into ETFs? Focus on building a business? Rent out short-term rentals? Find someone you can relate to and who is candid, so you can use their updates as motivation on your own journey to FI.