Updated on 03.07.09

My Real Net Worth

Trent Hamm

Every month, I spend some time on a personal finance statement. I’m careful to include the current balances on all of my debts and assets, then I add up the assets, subtract the debts off the top, and wind up with a number that, in one single value, represents my financial standing in the world.

I often wish that, when I look at my balance sheet at the end of the month, the difference between my assets and my debts was substantially larger. I would love for that number to be big enough for me to declare true financial independence.

But that number is not my net worth. Nor should it be yours.

The common terminology for that number is net worth, but I’ve always found “net worth” to be a strange way of expressing the idea. To me, the mere sum of one’s assets minus one’s debts is a good financial indicator, but it’s far from what I would call “net worth.”

As I take a look down my list of assets, I see things like our home, our savings and checking account balances, our retirement accounts, and so on.

But are those really all of our assets?

I view our close family and friends as major assets. These people help lift us up through thick and thin. They provide great friendship and social situations when times are good, and are there for encouragement (and more tangible help) when times are bad. Certainly, they’re an asset in our lives.

I look at our health as an asset. We’re all in good health. My wife and I are able to earn money because of our good health.

I view The Simple Dollar and its audience as a huge asset. Both provide constant encouragement for me to keep a strong focus on my financial health, plus both inspire me to greater things.

There are many other things in my life that are assets, too, that don’t show up on a balance sheet: our extended social network, the body of knowledge and education that my wife and I can draw on, our talents – these are all assets that can’t be truly quantified, but they all contribute significant value to our lives.

The same type of thinking continues as I move down to the debt part of the balance sheet.

I’m indebted to a lot of people for things they’ve helped me with in life. If called, I would gladly help any of those people with virtually anything they asked for.

I feel a great deal of spiritual indebtedness to the people and things in the world around me. I feel as though it is my responsibility to do what I can to make the world a better place.

I owe quite a bit of time to various groups and responsibilities – and, as you know, time is money.

To put it simply, my real net worth is more than just a sum of financial assets and debts. Compared to the wholeness and beauty of life, one’s financial net worth is just the beginning.

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  1. That’s really true, Trent. Thanks for the post.

    I think it is a lot easier for us to measure things that are quantifiable. Since we can’t give ourselves a “health score” or a “loved ones score” on a scale of 1-100, it seems like we don’t include those when analyzing our “worth”.

    Material things are much easier to quantify than our intangible assets.

  2. Gabriel says:

    Great, great post.

    Today in my blog I wrote about how the intangible benefits are really what drive me and other small businesses. Thank you for connecting that idea to our life and our family. That is truly what counts!

  3. Itay says:

    That is hardly correct.
    Your family members are not assests because you cannot “sell” them of use them as gurantee against a loan or debt. The term net worth is a known accounting term, and giving it new “philosiphical” meanings is pointless in my opinion.

  4. Joey says:

    Why waste time trying to measure the immeasurable? Your family are not assets. Your children are not debts. Your worth as a human being has nothing to do with your “net worth”; there’s no need to reinvent the wheel to prove that you value things other than money.

  5. Michele says:

    I think you need to think of it as “net financial worth” and then it might not bother you so much. I agree with some of the others that it is an accounting term.

  6. April says:

    @Itay: I would respectfully disagree that your family members don’t count in a quantifiable financial equation. You may not be able to sell your family members, but they can provide services you need in a pinch for free (babysitting, cooking, house repair). The accountant’s definition of “net worth” is useful for managing money, but narrow in the overall scope of things.

  7. Tizzle says:

    Add a line for “goodwill”, which is an accounting term, and stick a number on your other ‘assets’.

  8. Good discussion starter Trent… and what’s funny is that of what I’ve read EVERYONE is correct if only in representing a part of the puzzle.

    Yes, “Net Worth” is a defined accounting term but it would hardly be the first term in the English language that has been used to multiple effect – the word “net” itself takes on unique traits depending upon your perspective as accountant, fisherman, or basketball player. So trumping the cause for such a small factor is kinda silly.

    At the same time, some things have great value to us but represent little monetary worth. A good friendship has tremendous value but a $$ can’t really be assigned. Same with networks, relationships, passions, or feelings of indebtedness or obligation.

    This principle is true of so many of the “things” we possess. A “house” has a dollar worth but a “home” does not. My favorite recliner has a worth but the comfort and ease I enjoy when parked in it’s leathery goodness does not.

    And in some ways this reality – calculate-able dollars vs. intangible realities – grasps at the very nature of our existence.

    Life is not an accounting exercise but accounting exercises are a part of life. Similarly my mathematical “Net Worth” is not who I am but it is a part of what I am.

    In a very distilled way, our mission is ensure that our whole is worth more than simply the sum of our parts. Net worth being one of the easiest ‘parts’ to calculate.

    Thanks for affording us this discussion Trent!

  9. CPA Kevin says:

    That’s what’s called an “off-balance sheet asset” or liability in my line of work. Usually discussed in the note disclosures after the financial statements.

  10. Mule Skinner says:

    To get a notion of the nonfinancial portion of your net worth you might consider what would be available to you if the financial part was lost.

    Suddenly, right now, imagine I am destitute! What can I do? Well, actually I made a pact with my ex-wife covering this situation: an emergency plan. We agreed each to take the other in if this should occur; but now I’m married again, so this might not work. We have several friends around town who would house and feed us in a pinch. In one case they even have enough extra bedrooms. I have a son who doesn’t have a lot of space in his house, but he makes pretty good money so I could probably hit him up for funds. My wife has a pretty good social network back in her home area, so we could go there for refuge.

    And then, another part of my net worth is internal. When I no longer had to think about getting through the cold night, I could apply ingenuity and problem solving talent to getting back on my feet.

  11. Ryan Loos says:

    Great post! Personal Finance is so much more than just numbers on paper. It is about relationships and the quality of life that we want to live. A low net worth but a happy life is not always a bad thing!

  12. Teaspoon says:

    This post makes me feel somewhat better about my net worth, on paper, being a negative number (but only for a few more months!).

  13. Fred says:

    Only Americans, bankers & cattle farmers in Africa will add up stuff to make up a net worth… sort of a pissing contest.

    Without cash inflows this is meaningless.

  14. Sara A, says:

    I think that a lot of disagreement in this thread could be cleared up by defining these intangibles in economics terminology.

    Your family bonds and health would have “spillover benefits,” meaning that they have value that effects the financial net worth, but would not be reflected in an accounting ledger.

    Poor health, by contrast, would have “spillover costs.”

  15. Amanda says:

    Snarky comments, eh? I understand the literal nature of the commenter’s points about being true to definition, but I thought it was a fair post shooting for the soft side of evaluating all of your resources in life during such a trying financial time.

  16. Bill McCollam says:

    Very nice post. I think we should be optimizing for something much more important that wealth.

  17. Steven E says:

    If a good post is one that stirs up comments, then this is one of your best, as i think i’ve only commented one other time (but check this blog several times a day…)

    This post is pretty ridiculous in my opinion. I often dislike the “softer side” posts (the ones that are full of sentimental ‘dear diary’ style comments about how “watching the sunset makes it all worth while…”) – but this one goes beyond the softer side and attacks the logical and concrete side altogether. As mentioned, “net worth” is well defined and well understood by virtually anyone with a high school education.

    Now, i totally agree that there is more to life than net worth – but let’s not redefine ‘net worth’ just to cheer ourselves up. Look at your net worth, then realize that the number staring back at you (positive or negative) is not indicative of if your life is good.

    Maybe you should use your creativity to come up with a new term.

  18. Todd says:

    Great post, Trent. I think this has everything to do with one’s financial worth. I sat down one evening and made a list of all the people who matter more to me than all the money I have. The criteria was simple: If they had a fatal disease and the cure cost say $2,000,000, would I chip in every dollar I have into the fund to save their life? The list surprised me.

    Then I asked myself: If I had a life-threatening emergency, who could I count on to give me a substantial amount of money if I really needed it to survive? (Of course, there’s no way I’d ever ask unless it was this serious.) I was absolutely astounded by the list.

    I know it sounds too much like “It’s a Wonderful Life” but in the end, all of our financial net worths depend on the good will of the people around us. If our social networks, communities, institutions (including banks) all fail to honor basic interpersonal commitments, we really have no “money” at all. Money is just an abstract idea that represents our social networks.

  19. aa says:

    What a yucky entry!

  20. Noah says:

    Ignore the haters. You should feel plenty of positivity for the good foundations you’ve established. Thinking about it while looking at money sheets make perfect sense.

  21. Gabriel says:

    Wow, I’m amazed at all of the negativity going on with these comments. I think these people are the ones that need to reflect on your article the most.

    It really is important to consider the intangibles. There have been plenty of studies showing how health affects earning power and expenditures, and how strong social relationships make life easier for people in economically hard times. A man becomes an island unto himself at his own financial risk.

    And speaking as an entrepreneur, a love of positive assets is not what gets businesses started and money made. It is the intangibles – what you get out of the business emotionally, how you feel you are serving your customers and making a difference. When looking at a large population size, these intangibles really do end up having a “tangible” effect.

    So thanks for the insights, Trent, I thought it was great!

  22. Lenore says:

    I can’t seem to avoid the urge to make some reference to “sitting on my assets” even though I know it’s immature and irrelevant. I see what you meant by tallying up your family and social connections as resources. But let’s face it, you can’t sell your friends or relatives (at least not in America in this century, hopefully) so they don’t concretely figure into your bottom line. Neither do talent, ambition or other important intangibles because you can’t cash them in immediately. Finances are finances, but there are many, many things of worth in our lives that have nothing to do with money.

  23. Thank you, Trent, for this great post! I linked to it at my blog so my friends can read it, too.

    I agree wholeheartedly with your post. Thank you for all your thoughts and tips each day.

    Margaret Mary

  24. Moneyblogga says:

    For me personally, “net worth” represents my assets in monetary terms ONLY. These are the things upon which I can place a dollar value. I use my monetary net worth chart to remind me that money is a tool to be used to accomplish goals in the future and that’s ALL it is. As someone who is trying to turn life around and do the right things for a change, my net worth chart keeps me focused and on track. Not only does it remind me of future plans, but it also reminds me that, should something happen to me, I haven’t left my partner in life in the muck to sort out the myriad of financial problems I left behind. Those are the two primary functions of my monetary net worth chart. I wouldn’t dare to try to put a monetary value on my partner and family LOL ;) How about priceless?

  25. collin says:

    Excellent post, as are all the simple dollar posts I’ve read.
    The purpose of a great teacher is to get us to think, discuss, and learn from each other,your blogs
    certainly do that, and more. One thing I would like to ask is what am I worth to others? Particularly family, friends and neighbors. Am I doing enough to make a positive difference in their lives, or do I take more than I give.
    Thank you to all that take time to comment, I learn so much from you as well.

  26. joyce says:

    Definately an entry that I can see either viewpoint. While we’re making those entries shall we also add in our current government? An asset? Of course. Providing the infrastructure for our roads, schools, safety…and on and on, government could be a huge asset on my spreadsheet. A liability? Of course. But how do you possibly calculate just how great a liability with all the bailouts, spending and increased taxes that I’ll be paying until I die and then my grandkids will be picking up the tab? I’m keeping it simple. What I personally own, free and clear of any financial encumbrance minus what I don’t is my financial net worth.

  27. Leah says:

    I realize the real point of the post (what makes our lives rich does not always fit into what an accountant would but on a balance sheet), but I just wanted to throw out there that there are several tools that will do your net worth summary for you. I have a Bank of America account, and after I input all my passwords, it automatically checks the balances of all my other financial accounts, so I get a daily net worth summary broken down into assets & liabilities, and graphing function to further break down where my spending went, and the ability to download your info. I know Quicken does that as well, and there’s another website that I can’t find for the life of me, on which BoA’s net worth feature is based.

    Just a suggestion for those of us who are a bit less organized, and would like to delve deeper into our finances without all the manual input of making our own spreadsheets.

    Oh, and let’s make it clear for the last post’s haters… I’m not a guru. I’m just another person doing the best I can, learning life’s lessons learned like everyone else :)

  28. Jacinta says:

    This would have been a great entry (with much less negativity in the comments) if you’d only made up your own term rather than redefining a financial term to include non-financial information. My total net worth is a number. It’s actually a number I’m pretty comfortable with right now too.

    However my total net *value* (for example) is much more than that. It includes the goodwill I have with others that can directly be turned into money and services if required; and it includes the social liabilities I have which could be directly turned into expenses if others need that from me.

    “net value” isn’t a financial term; had you picked something more like that, the post would have been just as good for those who approve of the ideas of counting your fuzzies; and less irritating to the pedants.

  29. I can see your point that a net worth calculation is just the beginning of taking stock of your life. There are many rich, lonely, miserable people who I’d never trade places with, no matter how much higher their net worth is. You’d also have to take into account your value to others when determining your Real Net Worth.

  30. Gholmes says:

    Great post that net worth is an accounting term and shouldn’t be the sole measure how you are doing financially. In fact it is an inadequate measure if that is the only factor you look at.

    When you review a company’s audited statement a sophisticated reader isnt only looking at the balance sheet (assets – liabilities = net worth). There is the auditor’s opinion, income statement, statement of retained earnings, cash flow and notes. Sometimes there is even a management’s letter to the users of the financials.

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