"My boyfriend and I were having an argument last night about whether school debt should be counted negatively against your net worth. How you do calculate your net worth? And what should it be relative to your age/income?"
Great question and I am grateful that you did not say who is on which side of the argument. This way I do not need to choose sides. Net worth is a fairly straightforward calculation of assets – liabilities = net worth.
So what are your assets? These are basically everything that you own that has value. The most obvious items are your money (cash in the bank or under a mattress, investments in retirement accounts, etc), your car(s), your house, jewelry. You get the idea. As you can see, you can get down to the smallest items that you own and technically those would be considered assets. Add up the fair market value of everything you own and the total is your assets for the equation above. I want to emphasize that you determine what the fair market value is of your assets today and not what you paid for them.
Next are your liabilities. These are basically all the debts that you have. These could be your car loan, your house mortgage and yes, your student loans. Your credit card debt should also be included with this. Add together all these debts and you have your total liabilities for the net worth equation. Again, this is the amount that you owe an these today and not the amount of the original loan.
Hopefully this helped solve your debate. Though your college education certainly has some value in terms of future earning potential, it does not have any fair market value today. Conversely though, the debt you accumulated pursuing that education has to be repaid and there is an exact dollar amount that has to be paid. Therefore, it certainly is a liability.
The most important part of your question is what should be your net worth relative to your age/income. I’ve seen formulas published in books such as The Millionaire Next Door that attempt to state roughly what your net worth should be at a particular age. Their formula is
Current age x Annual Pre Tax Earnings / 10
Overall, this is an okay estimate but keep in mind this does not work well when you first enter the work force and may not be very accurate for those professionals with advanced degrees. These people often enter the work force later so they have less years of earnings and they also often have more debt due to student loans to achieve their advanced degrees.
In general though, I encourage you not to compare your net worth to others or where a formula says you should be. Instead, focus on growing your net worth through saving and investing and not accumulating more debt. Oftentimes it can be motivational to see your net worth grow year after year. This makes it easier to make smarter financial decisions and achieve your financial goals.