Who's better off?

Hine and Harriet, both aged 23, were working out their net worth with the help of Sorted's net worth calculator.

Harriet, who had been working since age 16, had accumulated savings of $15,000, had a car worth $10,000 and furniture and personal possessions which she thought would be worth around $25,000. She has no debt. Her net worth is $50,000. She's earning $25,000 a year and believes that could increase to about $35,000 with promotion over time.

Hine has just completed a law degree, has $5,000 of personal assets and a student loan of $20,000. Her net worth is negative $15,000. She has just started her first full time job and is earning $30,000 a year. She estimates that after 10 years she could be earning about $150,000 a year.

They discuss who is better off. On the basis of their current net worth, Harriet is better off by $65,000 and Hine feels envious of her friend’s financial freedom.

Harriet laughs at Hine and offers to swap any time. She works out that if she works for another 35 years, she’s likely to earn around $1.1 million before tax. Over the same period, Hine’s likely to earn $4.1 million before tax.

Hine realises that even though she has student debt right now, getting it was an investment in her future earning capacity. By that reasoning, her education is a valuable asset – even if it doesn’t show up in her net worth calculations right now.