June 3, 2020
Usually when we think of net worth we imagine all the holdings of a wealthy tycoon who owns several multi-million dollar businesses.
Or a young heiress on the New York social scene, or a successful blockbuster movie actor.
However, you have a net worth too. Essentially, your net worth is a personal balance sheet of your assets and liabilities, not unlike the balance sheets used in business.
Calculating your net worth
First, you’ll want to tally up all your assets. These would include:
- Personal property and cars
- Real estate equity
- Vested retirement plans
- Cash or savings
- Amounts owed to you
- Cash value of life insurance policies
Next, you’ll calculate your liabilities (amounts you owe someone). These would include:
- Mortgage balance
- Credit card balances
- Unpaid obligations
Your total liabilities subtracted from your total assets establishes your net worth.
The number could be positive, or it could be negative. Students, for example, often have a negative net worth because they may have student loans but haven’t had much of a chance to build personal assets yet.
It’s also important to realize that net worth isn’t always equal to liquid assets. Your net worth includes non-liquid assets, like the equity in your home.
What should your net worth be?
The notion that you should be at a certain net worth by a certain age is mostly arbitrary; wealth is relative. Having a hundred thousand dollars stashed away might sound like a lot, but if you live in an affluent area or have a large family to provide for, it may not last long if your job disappears suddenly. In other situations, the same hundred thousand dollars might be a fabulous starting point to a growing net worth.
Net worth can be a way of “keeping score”, but it’s important to remember the game is one in which you are the only player and you’re playing to best yourself. What someone else has or doesn’t have isn’t relevant to your needs and your future goals for your family.
Measuring your net worth can be a strong motivation when saving for the future. Do you want to be a certain net worth by a certain age? Not if the number is pulled out of thin air. If your net worth marks progress toward a well-reasoned goal, however, it’s extremely relevant.
When you’re ready to put together a personalized plan based on your net worth and (more importantly) your future goals, reach out anytime. We can use net worth as a starting point and a measurement tool, while keeping squarely focused on the real target: your long-term financial strategy.