It’s tough to argue that the most important number in your financial life is your net worth. You calculate it by adding up all your cash, assets, house value, investment statements and cash surrender value of your life insurance and subtract from this sum all of your debt, mortgage, and any other amounts owing. Put another way, it’s all your assets minus all your liabilities.

Coin Stacks

While net worth can start out as a negative number in your twenties (with student debt), it should over time turn positive and grow. Retirement savings, perhaps an appreciating home, and other investments can help on the positive side, and if you tackle and eliminate your debt you will increase your net worth by decreasing what is owed.

The most recent statistics indicate that the average Canadian family has a net worth of $554,100. Statistics Canada reports on how it changes based on age: Those who are 55-64 have an average net worth equal to 3 times that of Canadians who are 35-44.

What’s important is to grow your net worth over time. What is the best way to do this? Spend less than you make. Sounds easy, doesn’t it? It’s not. There are a lot of factors at play that can result in an increasing line of credit, even during the high income-earning years. It takes some discipline, the right tools, the right planning professional and yes, perhaps some sacrifice to grow your net worth over time.

Much has been written about how the latte effect (smaller purchases multiplied over the years) can impact your net worth and your standard of living at retirement. It makes sense to watch the cents.

However, it is the big decisions where most of the money is left on the table.

Leasing several cars over a few working decades, rather than buying good quality used cars can result in tens of thousands of dollars in lost net worth.

Stretching yourself into a home (buying a home slightly over your affordability range) can result in a lifestyle that is affected by your higher-spending neighbours’ more expensive tastes, and this can unknowingly increase your debt load. The same can be said for trading up too quickly.

Making poor decisions about your debt and how to handle it (a poorly timed debt consolidation, high mortgage amortization periods, the inappropriate use of credit cards and lines of credit) have a huge impact on your net worth.

And of course investing fees, including Canada’s ridiculously high mutual fund fees (MERs), can result in total returns that only match half of the market’s rise over the long term.

Unfortunately our educational system does a poor job at preparing us for all of the financial decisions we’ll make over a lifetime. A 22-year old can graduate from a university or college program and not understand how a term loan is different from a line of credit. Understanding the difference between these two debt products could save that graduate thousands of dollars over a lifetime.

Life is best lived with your eyes open. Learning about financial stuff will protect you from some easy-to-make mistakes, put you in control and help you grow your net worth. So, educate yourself. Read about household finance. Talk to people who seem to know what they’re doing. Always watch the source of your information though. Most of the financial services industry is trying to sell one thing or another, so there is a lot of biased information out there. Try not to add to their bottom line by looking after your own.