07 August 2015
Understanding Your Net Worth

You may own a home, a thriving business, a couple of cars, a vacation home, and maybe some mutual funds stashed away for retirement. On paper, you look pretty good with all of those assets, but simply totaling what you have doesn’t necessarily provide an accurate picture of your net worth. Why?

You may also have an outstanding mortgage on your home (a BIG one), you may owe money on your vehicles, and though your business is growing like gangbusters, your company is also awash in debt accumulated over the years.

Your personal net worth isn’t simply about the money and tangible assets you have. It’s also about what you owe. Your net worth is what you own minus what you owe.

What Are You Really Worth?

Add up all your cash, investments, home equity, your cars, a boat – everything you own. Then, add up what you owe. Your mortgage, your car loan, credit card debt, short-term loans, student loans, etc. You may have a lot of assets, but you may also have a lot of debt associated with them.

Determining your net worth isn’t simply a means to determine whether you can retire at 50. Developing an accurate picture of your net worth can deliver numerous money management benefits.

  • A determination of net worth provides an accurate picture of your current financial situation. Own a lot, owe a lot, and net worth may decrease. Own a little, but owe nothing and you may be worth more than you think.
  • Calculating your net worth provides a starting point for measuring financial progress in the years ahead. If your net worth in 2005 was $100,000, and today it’s $200,000, you’re making progress at building wealth and holding on to it for a brighter future.
  • A detailed statement of net worth shows where the money comes from and where it goes, better enabling you to budget resources and pay down expensive debt like credit cards, which usually charge a higher interest rate than, say, a mortgage loan backed by a real, tangible asset – your house.
  • Your current net worth may not provide the cash you need to live a long, comfortable, secure retirement.
  • As you age, your investment objectives may change. In your 20’s you may take more risk to earn a larger reward. If your risky investment tanks, you still have time to make up that loss. As you get older, preservation of capital may become the driving force in allocating investment money, so you seek safer, more secure investments.

Calculating your net worth today enables you to spend smarter today. It also enables you to estimate what you’ll need in the future. If you carry a jumbo, 30-year fixed mortgage on the home you live in, you may be paying off that mortgage well into retirement. Yes, the equity in the home is an asset, but it’s not necessarily a liquid asset.

Intangible Wealth

As you age, you have rights to assets that may not be available to you today – intangible or virtual wealth. For example, you may have an IRA or Simplified Employee Pension (SEP) plan. You may be entitled to a pension when you reach a certain age, or after you’ve worked for your employee for 35 years. You can’t use that pension now, but 30 years from now, when you do retire, that pension – that intangible – becomes a real asset that pays out every month.

The same with Social Security, which will help you during your retirement years. You may not be able to access Social Security funds now (that money is a virtual asset), but someday it’ll become a real asset that actually pays for food!

Create a Net Worth Statement

It isn’t difficult to determine net worth, and it’s well worth your time to do it now, rather than when you’re staring retirement in the face.

Start by adding up all of your current assets:

  • cash in the bank
  • investments including stocks, bonds, mutual funds, and other savings options
  • the cash value of all term insurance policies
  • personal property including furniture, jewelry, fine art, and other possessions of value
  • business assets, especially if you own or are a partner in a small business that generates cash
  • the market value of your home (and vacation home if you have one)
  • the value of your vehicles (the value of your car is a depreciating asset; as each year passes, and as the odometer climbs, your car is worth less, but it’s still worth something)
  • personal loans made to family (assuming they are likely to be repaid, which can be problematic)

Next, total up your outstanding debt including:

  • any outstanding mortgage debt
  • the amount owed on vehicles
  • credit card balances – ALL of them
  • outstanding student loans

What’s left over?

If what you own (assets) is worth more than what you owe (liabilities), you have a positive net worth. If not, you may actually be “underwater”, a situation many people get into without even realizing it. Looking at this calculation will give you a better understanding of your financial situation so you can take steps to improve it if necessary.

Looking For Help in Determining Net Worth?

It’s not unusual. You may owe money on an antique car that actually increases in value over time. Or, your house may need extensive repairs before it can be sold, regardless of the estimated cash value.

You may have a coin collection worth thousands, or it can be worth much less if the coin collecting market collapses. Collectibles are only as valuable as other collectors are willing to pay.

In any case, and regardless of your age, you should take the time to determine your personal net wealth to better plan for tomorrow.

Your retirement may seem a long way off, but when you do enter your retirement years, you’ll be glad you took the time to determine net personal worth today – while you still have years to build up net worth for you and your family.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.


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