How important is your net worth? Technically, a person’s net worth is the difference between assets and liabilities, or the value of things a person owns minus their debts. Taking a quick look at my net worth I have around $30,000 in my 401(k), $4,000.00 in savings, $2,000 in a brokerage account, and around $1,000 is physical assets (furniture, television, toys, etc.). Looking at my liabilities I owe $30,000 in student loans and have a $22,000 car loan. This gives a ballpark net worth of:

$30,000 + $4,000 + $2,000 + $1,000 - $30,000 - $22,000 = -$15,000

According to this little formula, I’m worth less than nothing. I can see the light at the end of the tunnel though. I cannot imagine what someone’s net worth looks like if they bought a home in Silicon Valley within the last few years. The median single family home price in Santa Clara County for November 2007 was published at $858,000 according to Real Estate Reports. Say a very prime borrower came along and purchased a home at the median price with a down payment of 30% or $257,000. That person would still be in the red for $601,000. Looking at an amortization schedule from Mortgage Professor, it would take around 16 years at 6.5% to build enough equity in the home that the value of the asset minus the loan amount is zero. That seems like quite a bit of time and involves a huge down payment. This also doesn’t account for appreciation. The world is free to double check my math. So, back to my original question, does net worth really mean anything since a lot of home owners will have negative net worth for a very long time? Also, what about recent home buyers whose homes are now worth less than they paid and have no equity?