Podcast: What does your net worth really mean?

Pocket Money explores how much we're worth, and why it matters.

If you add up every single one of your assets and subtract your debts, you would know (on paper) your net worth. But that number actually reveals so much more about you and your financial health than you might think.

This week on Pocket Money, we explore all the ins and outs of net worth, how you should think about net worth when you're young, the difference between good debt and bad debt and why Mr Burns from The Simpsons is a surprisingly good financial role model.

On this episode, we're joined by Jared Lock, the creator of Money and my Daughter, a blog about the intersection of personal finance and family. Jared brings a wealth of knowledge about thinking about your personal finance with the future in mind, setting goals and lessons we can take from the FIRE movement.

P.S. starting next week, we'll be releasing weekly episodes of Pocket Money!

Mentioned in this episode

• How Jared paid for his daughter's private education before she was born
• How to calculate your net worth
• A beginner's guide to investing in exchange-traded funds (ETFs)

Read the transcript of this episode

• Episode 119 transcript

  Sally:
  Welcome back friends and foes.

  Marc:
  Take a seat and listen to the dulcet tones of Sally, and myself Marc. Today, net worth. What's your net worth? By the way?

  Sally:
  I think it's in the minus I think we call that bad bad net worth.

  Marc:
  Grow!

  Sally:
  Damn you. Well actually before this I didn't really I hadn't really thought about net worth.

  Marc:
  Me neither, I think both thought it was something that you know it gets talked a lot about in movies like Richie Rich. Yeah, yeah you know it's not something that like people of our age really put much stock into.

  Sally:
  Unless I have a McDonald's in my house like Richie Rich, I don't need to start thinking about my net worth.

  Marc:
  Yeah, that's your net worth goal. But yeah, I think so we to find out more spoke to Jared Lock. Jared is a young dad and husband, personal finance expert and the creator of the Money and My Daughter blog.

  Sally:
  Yeah, and on the blog, he's constantly trialling new financial strategies, and then sharing the learnings on the blog. One of the most interesting ones I includes how he was able to pay for his daughter's education before she was even born. Talk about planning.

  Marc:
  I know, right, but he kind of puts the whole topic of net worth into perspective and actually sort of made us care bit more about it. Right. So yeah, we also tackle good debt and bad debt and how net worth is actually more of a conversation about financial fitness, which I think is a great little idea.

  Sally:
  Yeah. And also, why should young people or you know, people who maybe are only just getting into their career shouldn't even care about their net worth and what it really means.

  Marc:
  And why Mr Burns is a wonderful personal finance role model.

  Sally:
  The unsung hero.

  Marc:
  Great. So let's play our interview with Jared Lock.

  Sally:
  Welcome, Jared, thanks for joining us at Pocket Money.

  Jared Lock:
  Thanks for having me.

  Sally:
  So we had a little bit of a chat about this before. But for our listeners out there, can you tell us a little bit about yourself and how you got to starting Money and My Daughter?

  Jared Lock:
  Yeah, sure. I had a daughter, two and a half years ago, which was super exciting, I started to realise that a lot of the things that I had done financially in preparation for having a child, but also, during those two years of having a child seemed to have a real level of interest from friends and family. At the time, I didn't really think that were particularly exceptional. I just thought that I was being, you know, clever with money and well prepared for, you know, the costs that I felt were coming up and having a child, but I guess you know, more I talked to people, the more they realised that people felt that what I had done was pretty interesting and different from what most other people do. So I thought, you know, maybe I should start just journaling, all the stuff that I'm doing with regards to money. And like, I guess all of the thoughts and strategies I had around it. And that's sort of how Money and My Daughter started as a blog.

  Marc:
  That's great. So today, we're going to be talking about net worth. So it's probably good to start with what it actually is, what is net worth?

  Jared Lock:
  Net worth sounds probably like a pretty scary word. And a scary kind of subject, which I can totally understand. All net worth really means is everything that you own, that makes you money, and everything that only costs you money, and you add those things together. And there's your net worth.

  Marc:
  That's great. And I can imagine 20-somethings that are listening to these podcasts, much like Sally, and I probably wondering, you know, why should you care about net worth, if you perhaps don't have anything?

  Sally:
  Yeah, if you don't have assets, or you don't have property, and you're really just starting your career.

  Jared Lock:
  If you can kind of consider net worth, like a health check, kind of like a financial health check. So I guess if you think in terms of your physical health, you could take the view and say, Look, I'm going to be terrible towards my physical health, I'm going to eat terribly, I'm not going to exercise, you know, I'm not going to do anything with regards to musical health, because I'm not going to run a marathon one day. And that's perhaps a fair statement. But what ultimately it's going to mean is that you're going to be most likely quite unhealthy, which I don't think anyone would think is a good thing. In the same sense. With regards to your net worth, you could say, you know, look, I'm not planning on being a millionaire or billionaire one day. So why do I need to worry about my net worth will fix exactly the same reason you need to worry about your health, the worse your net worth gets, let's say and the more you were to go into, you know, a negative net worth situation where you've got a whole lot of things costing you money, for example, credit card, after pale by now highlighted dead, and a whole lot of other debt that is ultimately not fundamentally contract revealing to your net worth slash your health, the worse off you're ultimately going to be. So I guess if we consider net worth more like a health check for your finances, that's kind of why people need to be conscious of it.

  Marc:
  Income, obviously, is also an important factor in your financial health. Should we care more about income or net worth?

  Jared Lock:
  Look, you know, in many ways your income is going to assist you in keeping a healthy level of net worth, obviously, the more income you receive, the more able you are to create a positive, healthy net worth yourself. And I think, you know, just to clarify that when we talk about a positive net worth, often people sort of think, Oh, you know, Richard Pratt, for example, has has a positive net worth, or James Parker has a positive net worth. Yes, he does. And he's a billionaire. But someone who has, you know, $500 in the bank, and no, no debt, ultimately sitting behind that also has a positive net worth. So that's a healthy financial situation. So when we talk about income, ultimately, what we're saying is, if you're making a healthy level of income, then you have the ability to generate a healthy net worth or grow for yourself a healthy net worth.

  Sally:
  I feel like a lot of young people as well, or at least when I'm chatting with my friends and talking about, we don't sit around talking about net worth. But you know, if we are talking about finances, or financial goals, a lot of the time people are talking about, like, what income they want to get to. And then that's where, you know, they'll start talking about, you know, like, what they want to do with that money, rather than talking about net worth, which may be something that we need to do differently, thinking about both sides.

  Jared Lock:
  Yeah, totally. And I think, you know, it's always hard because fundamentally, people don't sit around and talk about their health. I mean, they do. And they're, like 80, and 90, or, you know, in the same way, I mean, net worth is perhaps even more private, because it's not as overt as someone's healthy conscious look, somebody's got all their net worth might be this, but fundamentally, for you, as an individual, it is a really good measure of understanding kind of what your financial health looks like. There are plenty of people who have really high income, but fundamentally, that income is going towards servicing or looking after really high debt. And so their net worth is really not going to be very good. You know, they might be making hundreds of thousands of dollars a year in income, but they also might be paying out hundreds of thousand dollars in interest on various loans and other debts that they have. They're not using it to put themselves in a very financially healthy situation. They're just using it to ultimately service debt that provides them with a lifestyle today. But if that income for whatever reason dropped, it puts them in a situation where that lifestyle funded largely by debt isn't viable anymore, and that debt can just come crashing down around them. And that's a really, really bad situation to be in.

  Sally:
  Okay, so usually, to break things off in the middle of the episode, we like to play a little game called underrated or overrated. And it's just about that time, would you like to kick us off Marc?

  Marc:
  Yeah, just answer with underrated or overrated to the following topics. So we'll start off with owning a home.

  Jared Lock:
  Today. It's probably overrated.

  Marc:
  Whoo, spicy.

  Sally:
  So why dig into that a little bit for us? Because I know there'll be some controversial arguments for and against.

  Jared Lock:
  Yeah, sure. Look. So I think the thing about property today is that, particularly in our major cities of Melbourne and Sydney, property is really expensive. And while it definitely is a milestone for people to buy their own property, fundamentally, what we're saying is a lot of people taking out a loan debt to do that, which puts them in a really, really can put them in a really quite stressful situation, where 10, 20, 30 years down the track, when they pay that property off, that may be the only asset they actually owned. The only thing that's genuinely contributing to their financial health and that where the challenge is that when you take on quite a lot of debt for a property, and that property doesn't necessarily appreciate in value will go up in value, if in fact, it stayed the same value or went down in value. That's probably not the best place for your funds, because there are many other you know, places to ultimately put money that not as exciting or perhaps don't seem like such a milestone at the time, but ultimately might end up making you back a lot more money.

  Sally:
  Okay, so the next one, the FIRE movement, financial independence, retire early.

  Jared Lock:
  I really like this movement. I don't consider myself a FIRE person. So I would definitely say it's underrated.

  Sally:
  Okay, you wouldn't call yourself a Firebug. Not just yet,

  Jared Lock:
  Not really, book five, those me talking about is, you know, they're saying to live really simplistic lifestyles, while maximising their income and saving and investing the maximum out of that income, so that as soon as possible, they can stop earning an income from a job, let's say, and then go and continue living this very minimalist and simplistic lifestyle. And I think what that really means is, you've got to really sign up for the long term to live a very simplistic and minimalist lifestyle. And that's not really for everyone. But at the same time, the principles of saving as much of your money as possible, investing as much of your money as possible, and taking some of those principles of minimalism are really good things.

  Marc:
  Awesome. Mr Burns from the Simpsons, underrated or overrated? That is a very weird question.

  Jared Lock:
  I'm gonna go ahead and say he's probably underrated.

  Sally:
  We were trying to think of people with very positive net worth. And he came to mind.

  Jared Lock:
  He's probably a really good example of someone who has worked his way into a situation where he owns an asset, in this case of business, the nuclear plant that's paying him in income, such that it's meeting all of his expenses, and no more so that he can then go and invest money to become more and more and more rich, which is fundamentally a situation that I think we should all kind of aspire to be. And that's not to say that we should all aspire to go and own a business that, you know, is makes heaps of money for us. But I think, you know, what I'm saying there is that what we should all aspire to do is put ourselves in a situation where we do have loose funds outside of, you know, our living expenses, which allow us to going invest money into things, whether it be property or shares or, you know, other investment vehicles that are ultimately going to over the medium and long term put us in a situation where our net worth is very healthy, and give us opportunities that we wouldn't have had just from our income alone.

  Marc:
  That's great.

  Sally:
  So from this, the lesson is that we should all be like Mr Burns. Right?

  Jared Lock:
  Sure...

  Sally:
  And last but not least, being a parent, underrated or overrated. I feel like our parents Marc would probably say overrated.

  Jared Lock:
  Let's go with underrated, not that I don't think anyone doesn't believe that being a parents, right thing. But I think that there are a lot of bright things that we can get out of being a parent. And, you know, obviously, we're talking right now about finances and net worth and being in a healthy financial situation. And you know, kind of like I said, At the start, the thought of me having a child was very much the catalyst for me to start thinking, you know, what I need to start getting my finances in a healthy situation, such that me and my family can live our best financial life. And money can enable us to make have the choices that we want to have and do the things that we want to have. I gave the example of education before but it also made me start thinking about property. It also made me start thinking about generally say, giving a portion of my income and spending less than I earned, and all those really good sort of financial habits that, you know, really, I don't think that we necessarily start thinking about unless we genuinely have to. And so for me, having a child or even thinking about having a child really gave me that pushed us out thinking okay, well, what does a good and healthy financial situation look like? And what do I need to change from what I'm doing today to being in that situation tomorrow?

  Marc:
  That's awesome.

  Sally:
  Yeah, gives you the perspective or like, forces you to have the perspective to think long term.

  Jared Lock:
  Yeah, totally. And just be living a healthy life. And I, you know, again, I'm obviously referring to help you with regards to finances, but it's also kind of pushed me to be healthy. Otherwise, you know, I don't really eat as much junk food as I did. I go to the gym, you know, a few times a week, I get up early in the morning now, so that I can, you know, write my blog, for example, all of this stuff has ultimately come from me feeling, you know, the responsibility to be a better person, financially and non-financially, for my daughter.

  Marc:
  Sounds very underrated, then.

  Sally:
  You could be a better person too, Marc!

  Marc:
  All it takes is just being a parent, sign me up. Okay, so that was awesome Jared. So let's go back to the regular question. Let's talk through the concept of building wealth versus building debt. So is taking on debt ever a good idea?

  Jared Lock:
  Yeah, definitely. Like there's this notion of good debt and bad debt. You know, if let's say you borrow money to buy a house, which many of us do, and will do, when you borrow money to buy a house, your expectation of that house is going to go up in value over time, your expectations, also, these kind of provide some basic life necessities, like a roof over your head, you know, a one place to call home provide you with a necessary aspect of your life borrowing to buy property, a house that you expect will go up in value over time, or if not certainly not lose value over time, is fundamentally good debt, because it did that's providing you a necessary aspect of your life, but also it's debt that ultimately should be making you money.

  Sally:
  But in a world where a lot of young Australians, especially are carrying, you know, pretty huge amounts of student debt, even before they enter the full-time workforce. What are your thoughts around, you know, like HECS debt and student debt, in terms of net worth, and then also, do you have any tips for building wealth early in your life, if you're in that situation?

  Jared Lock:
  With regards to you know, HECS debt, ultimately HELP debt, or whatever you want to call it, that's kind of a necessary debt that you know, you need to take on, that enables you to, you know, have a career, let's say, or have the necessary skills for you to go out and do a certain job, I would actually probably consider that being good debt, because that's ultimately debt that is making you money, the debt itself doesn't make you money, but what you get out of that debt ultimately gives you the ability to go out and get a job do you want to be able to get will have skills you want to be able to have that will, in the end make you money. And so anyone out there who's got HECS debt is ultimately using the skills and experiences that they got out of university or whatever type of study they did, where they got that should be ultimately really happy and comfortable with that, that those skills and experiences are helping them and allowing them to go on earn income. So I don't think anyone should sort of necessarily be concerned about that.

  Sally:
  So the second half of the question was, do you have any tips for young people who are looking for ways to build well early in their life and get on the right track?

  Jared Lock:
  Definitely, this is like a huge passion of mine, I think a huge aspect of like the Money and My Daughter blog speaks to this. And I've got heaps of ideas around this. So I could absolutely talk on this for hours. The first thing about creating a positive net worth yourself and and generating a level of wealth for yourself in an early stage is earning an income and then all the income that you have spending less than you earn. And with that remainder, as much of that remainder as possible, putting it into assets or investments that you expect and can comfortably expect will make you money over time. Some of the simple ones, obviously property, but it's very expensive to get into from a young age. The other ones are shares. One of the challenges with the shares, the main challenge, it says is, you know what company to invest in. And I certainly couldn't sit here and tell anyone what company they should invest in, and I don't invest directly in in the shares. Another one might be, you know, something like Raiz, which comes up a lot and fundamentally Raiz is just a platform that allows you to put a portion of your money that you spend, and then into an index fund. And an index fund is really just a grouping of a whole bunch of different types of investments, to give you the ability to invest in them where you probably wouldn't otherwise, you know, if we take the example of commercial property, I certainly don't have enough money today. And most other people don't to go invest in a big commercial building. However, it might be a really great investment. What an index fund does with you, or is allow you to put a bit of money in a fund, that combined with everyone else's money gives you some investment into an asset like a big commercial building, when I talk about net worth, and when I talk about the sort of journey that I went on, before my daughter was born to invest for her education, I invested money in an index fund, you can go about that in a bunch of different ways. One way is to buy what's called an exchange traded fund, which you can buy on the share market on the ASX. It's exactly the same thing as index fund, it's just that you buy units in it through the share market, the other way to do it is to go directly with an index fund provider. So the one I did I went through was Vanguard. And what Vanguard does is it provides you direct access to their own index funds, they do have a minimum buy-in. So in order to invest in index fund, you have to start with a minimum $5,000, which I absolutely understand is is a big stretch. But once you're in there, there is no cost for you to put more money in there. Unlike shares, where every time you go and buy a share, or a group of shares doesn't matter how many, you will be paying around $15 to $20, for every purchase of shares. Whereas investing directly with an index fund, you don't have to pay any additional money every time you want to put money in. So I can just be pay sort of $50, $100, $200, whatever it might be, whenever I've got it into that fund. And that index fund was the thing that went from $5,000, to many, many, many more thousands of dollars, and allowed me to be in a situation where, you know, my daughter's private education is basically paid for for high school.

  Sally:
  Yeah, it's interesting, those new ways, or those different ways that you can do it where, you know, it might be smaller investments that you can put in rather than something like property, which I think is maybe a little bit less daunting for young people as well. And I know that a big question that I always have is, what if you don't really have a set goal yet? And you don't know what you should be investing in? Or for? Like, what do you even saving money for? What if you don't know if you want to have a family yet, or? Or what you want to do? So how important do you think it is to have like a set goal because you did say that when you started thinking about a family, that's what really like pushed you into into the right gear.

  Jared Lock:
  We've all ultimately got things that we want in life that may seem at the moment a bit out of reach. We may in life want to be in a situation where we can retire early. And that's sort of going back to that FIRE movement, and the FIRE guys love talking about index funds. So you know, you might want to retire when you're 40 years old, that might seem incredibly out of reach. But the power of being 25 years old, and starting to invest $100, every month, or every fortnight or whatever it might be, is incredible. And there's so many stats out there saying basically the earlier you start putting money away and investing into something like an index fund that is going to grow steadily over time. It's so so incredibly powerful. And that's sort of where we talked about that concept of compound interest. So money making more money for you, outside of that, you know, and that's obviously a big one going in retiring at, you know, 40 or 30, or whatever it might be. But outside of that we might want to buy a house one day, we might want to buy an apartment one day, we might want to go and travel for a year at some point, you know, all of those things are very, very, very possible. But the important sort of point is to say, if I want those things at some point, what can I do today to make it incredibly likely that at some point, I can do that. And also, what we ultimately have in our capability today is to say, Well, if I spend a little less here and there and put a little bit more away into something like an index fund or Raiz account, or a high interest bearing account, every time you do that, you're making that thing that you want, you know, at some point in time, whether it be again, 3, 5 or 10 years, more and more and more possible, every deposit you put into that investment is ultimately you're getting closer and closer to that thing that you're you know, hoping to have or or get one day, which I you know, I fundamentally think is really exciting. And I kind of got hooked on that pretty early on, you know, when I started saying, oh, wow, like I've got $10,000 in this education fund, don't feel like it's been that long, like, this is amazing. And then particularly with index funds, what you end up getting is you get at the middle of the year and the end of the dividends. And dividends are basically just the things that you've invested in paying you money to say thank you for investing in us. And you know, those can really add up, you know, an index fund can pay you anywhere between sort of 5% and 10% dividends at any one time, which is you know, pretty amazing. I mean, 5% of $10,000 is this 500 bucks. So that's great.

  Marc:
  I think that's a great point. It's basically saying like, you know, even if you don't know what you want, just start saving anyways.

  Sally:
  Yeah, well, then I guess it gives you the freedom to make that choice, whatever that is, you at least have something to work with.

  Jared Lock:
  Yeah, totally. And, you know, even if you don't know what you want, I think all of us ultimately in life, want options, you know, and that's what me and my wife said that we wanted for our child, you know, we want an option, we're not saying that we're going to go and send it to some, you know, incredibly expensive school, we might just send them to the local school around the corner that, you know, doesn't require us to have this big education fund for her. But I think fundamentally, what we wanted was the option to do that, if that's what we chose to do, in the same way that we all love the option to walk out on a job that we're not enjoying, or to try have a go at that company that we, you know, business that we want to start building, or change careers and move into a career that might not make as much money, but we might really enjoy a lot more, all of those options become more and more available, the more you start building up your net worth, and putting yourself into a really healthy financial situation where you do have an asset or a number of assets that are either at a level where you can draw down on them a little bit and still maintain, you know, a level of lifestyle that's comfortable for you, or ideally that are actually paying you out a little bit of money such that you know, you might not necessarily have to live in it, but it certainly helps.

  Marc:
  Yeah, that's great. Well, I think that's everything that we sort of had planned to ask you today. Jared, thank you so much for your time. Where can our listeners go to find out more?

  Jared Lock:
  Well, obviously, in an incredibly biased self-promotion, if you are a young parent, if you're thinking about being a parent, you can absolutely go to MoneyandMyDaughter.com. I've written a number of blog posts on there that detail exactly how I started my index fund and basically got to the level where I could pay for my daughter's private education on the day she was born. I also talked about a whole bunch of other stuff in there that helps put you in the best financial situation possible. And also ultimately just helps you as a young parent or aspirational young parent live your best financial life. So definitely encourage people who are in that situation or think they might be in that situation one day to go and check out MoneyandMyDaughter.com.

  Marc:
  That's awesome. We'll put the links to your blog in our show notes page as well. Brilliant. Thanks, guys. Well, thanks again. Jared for your time. We found that really great.

  Sally:
  Yeah, thanks. Learnt so much!

  Marc:
  Well, that was an excellent exploration into the wide world of net worth.

  Sally:
  And the importance of Mr Burns.

  Marc:
  And the importance of Mr Burns very important.

  Sally:
  So to learn more, get all of the show notes and resources that we mentioned in the episode make sure to go to finder.com.au/podcast. Feel free to leave us a nice little review wherever you're listening. And subscribe if you want to hear more, which I know you do. Yeah, so don't lie to yourself and don't lie to us.

  Marc:
  And as always, please follow us on Instagram where we have some tasty personal finance memes and other hot content. I think that's it from us. Yeah, have anything else you want to say to the wide world?

  Sally:
  Go watch Richie Rich that's all you need to do. Yes, I will teach you everything you need to know about net worth.

  Marc:
  Your homework for this episode. Go watch Richie Rich.

  Sally:
  And then Home Alone if you have time.

  Marc:
  Mark and Sally out. Thanks for listening to pocket money from Finder. Head over to finder.com.au/podcast for the show notes for this episode. The Finder podcast is intended to provide you with tips, tools and strategies that will help you make better decisions. Although we're licensed and authorised, we don't provide financial advice. So please consider your own situation or get advice before making any decisions based on anything in our show. Thanks for listening.

  Sally:
  You want to learn more about Richie Rich? Subscribe to this podcast.

  Marc:
  And watch Richie Rich.

The Finder Pocket Money podcast is intended to provide you with tips, tools and strategies that will help you make better decisions. Although we're licensed and authorised, we (and our guests) aren't providing any form of financial or legal advice. So please consider your own situation and get proper advice about your individual circumstances before making any decisions based on anything in our show. Thanks for listening!

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Pocket Money is hosted by Sally McMullen and Marc Terrano. The show is produced by Franko Ali and Ankita Shetty. Editing and theme music from Brianna Ansaldo of Bamby Media.

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