How do you measure financial success?
 Many of us like to measure it with our income. While income is one way, your net worth is a much better reflection of how wealthy you are. Sure, getting a pay raise at work is nice, but your net worth is the number you really want to maximize.

To illustrate the difference between income and net worth, since it’s summertime and the Olympics are in full swing, I’ll use the sport of golf. Income is a lot like a single hole in a round of golf. Let’s say on your first hole you get an eagle – fantastic! You’re on top of the world. You get a birdie on your second hole. You’re at the top of the leaderboard. You give yourself a pat on the back.

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But golf isn’t about just one or two holes – similar to net worth, it’s about how you do in the long-run (in the case of golf, over 18 holes). Let’s say you bogey 10 of the last 16 holes and find yourself at the bottom of the leaderboard. Too bad, you’re out of contention.

You can have the nicest clubs in the world (make a decent living), but if you don’t use your clubs (money) wisely, you could end up on the losing end (broke). Ok, that’s enough for the golf analogy, but hopefully you get our point.

What’s Your Net Worth and Why It Matters
“Net worth” may sound intimidating, but it’s really not. But before we discuss net worth, it helps to understand what it is. Your net worth is your assets (what you own) minus your liabilities (what you owe). Assets include your chequing account, savings account, investments such as mutual funds, ETFs and GICs, your home and car. Liabilities include your car loans, credit card debt, your mortgage and line of credit.

To calculate your net worth, find the difference between your total assets and total liabilities. Here is the basic net worth formula:
Net Worth = Total Assets less Total Liabilities

Don’t worry, you don’t have to be a math whiz to calculate your net worth. GetSmarterAboutMoney.ca has an online calculator you can use to quickly figure it out.

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Where Should Your Net Worth Be?

It all depends on your age. The Globe and Mail wrote an interesting article that includes a table with net worth milestones for the average Canadian. For example, at age 30, the average Canadian only has a net worth of $70,000, but by age 35 it’s over doubled to $165,000. Remember, this is only an average. If you’re below the average, there’s nothing to be ashamed of, as long as you take steps to increase your net worth.

Aim to grow your net worth over time by increasing your assets and decreasing your liabilities. For most people, their most valuable asset is the family home. By paying down your mortgage and eventually paying it off, you’ll get rid of your biggest liability. You don’t want all your money tied up in your home since it’s an illiquid asset. At the same time, aim to grow your investments. Regularly investing in low-cost ETFs is an excellent way to accomplish this.

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Ideally your net worth will be a positive number, but that’s not always the case. For example, if you’re a millennial fresh out of university with $20,000 of student debt, your net worth may be negative, but don’t despair. By landing a well-paying full-time job, you can start chipping away at your debt and eventually have a positive net worth.