Should I care about my net worth in my twenties?
The short answer: no.
The long answer: educate yourself 😉. No, you shouldn’t care, but it’s good to understand what the number means and how you could use it as a tool in the future. Someone’s ‘net worth’ is more important somewhere like the US, where people get into huge amounts of debt thanks to university. But in Europe, where university is either free or the debt is cheap, your net worth ain’t such a big deal.
But if you want to be educated and figure it out for yourself… read on 😛
What is le ‘net worth’?
Put simply, your net worth is the total value of your assets. This means you need to add up all your assets and subtract your debt. Voila! Your net worth:
Assets – Liabilities = Net Worth
Your assets are things such as
- Items of value
Your liabilities are things such as:
- Student loans
- Car loans
If you’re in your twenties, then you’re very likely to not have many assets. In fact, you might even have a negative net worth, if you have stuff such as student loan debt. That’s totally fine, but knowing your net worth is an excellent way to know how much debt you need to get rid of if you want to be debt-free.
Note the ‘if’. You want to do this cleverly; in some cases you’re better off not paying off your debt. In the UK, for example, your debt will only cost you 9% of what you earn and then be forgiven after 30 years – since the interest rate is so low, if you pay it off early you may actually be paying more! Same can be said for mortgages. If the interest is low then most times you’re better off putting the extra money in the stock market. The key word here is low interest. If you have credit card debt, car debt and other high interest debt, you want those disappearing as soon as possible.
The only other case for paying off debt early is to give you peace of mind. If you really don’t like owing money to anyone and feel uncomfortable owing the government for your education or your house, then maybe you should look into paying it off early. But first, look at the numbers and do the calculations… there’s always a clever way of doing things 😉.
Advice by age
There’s a lot of different advice out there for people in their twenties on what to do with their net worth. Americans will tell you get rid of your debt. Others may say you want to be building your net worth as soon as possible.
But as usual, it’s important to look at the big picture. If you’re in the UK, as we said before your student loan is cheap, and in most cases you’re better off not paying off your debt. This is similar to other European countries, where debt is cheap and is usually forgiven after a certain period of time.
So usually, your net worth in your twenties is close to 0. Here is the advice other people give when it comes to age:
- Have half of your salary saved by age 30.
- Have twice your salary saved by age 40.
- Have four times your salary saved by age 50
- Have six times your salary saved by age 60
- Have ten times your salary saved by the time you’re retired. 👵
Now this is pretty standard advice, but there is one thing this advice doesn’t seem to take into account: you will make the most amount of money between the age of 40-50.
This means that your savings will not be linear, and that the amount you save at the age of 40 might be ten times bigger than what you save at the age of 20.
So instead, this is what I think is better advice…
Advice in your 20s: save, but not too much
Conclusion: don’t stress yourself into saving as much as you can in your twenties, focus instead on…. Yes you guessed it: career capital.
By career capital I mean skills, experience, connections and credentials. The more skills and experience you build in your twenties, the more money you’ll be able to make in your 40s, and therefore, the more you’ll be able to save for your net worth.
That does not mean you shouldn’t save in your 20s. Quite the contrary, since you have time on your side, you want to be using compound interest to start saving for retirement or even reaching financial independence.
A good threshold is: make enough money in your twenties that you can quite easily save 15% of your income. It’s not much, but it’s enough to get started. This is the percentage people recommend to save for retirement, and the sooner you start the less you’ll have to worry about your future granny self.
So, no, you don’t need to worry about your net worth in your twenties. Instead, treat it as an interesting number that measures how much you’re investing. To figure out what you really should be doing with your career check out the Adulting page where I break down exact steps to get a career that personally fits you best.
Why is that important? Because remember this:
An investment in figuring out your career is justified because some things are so much more important that finding them in the first place repays the effort ten times more.
Meaning that if you find a career the fits you best, you’re more likely to enjoy what you’re doing and excel at the job itself. This in turn means that you’ll be able to earn much more money in your 40s, 50s and 60s, which will therefore increase your net worth even further. 📈
Once you’ve got your career a bit more figured out and you’re a bit more clear on your path, then you can focus on building up assets, whether through property investing or some good old flag theory. ⛳
All in all, your net worth is a measurement to help you get where you want to be. So it all depends on where you want to be in your twenties. If you have no idea where you want to be, like most of us in our twenties, then prioritise figuring out that first. ‘That’ means building skills, exploring career paths, building a portfolio and making connections. A flexible career capital is what will make it much easier to open doors in your future. 🌎