Get a snapshot of your financial health.
You hear it in the news constantly: Elon Musk is the richest celebrity with a net worth of $264.4 billion, Jeff Bezos has a $177.5 billion net worth, Oprah Winfrey tops the list of wealthiest Black Americans with a net worth of $2.6 billion. The list goes on and on. Those numbers are incomprehensible for many of us, but they may make you wonder: What is your own net worth?
Your Financial Scoreboard
Net worth is a quick financial snapshot or statement showing your overall financial health. While those two words may sound complex, financial advisors say it’s easy to calculate and something everyone should track.
“It’s important to understand your net worth over a period of time because it gives you a good scoreboard of what you’re looking at and your full financial picture,” says Cole Mertens, a financial advisor with Wallstreet Group.
To calculate your net worth, you must add up all of your liabilities or debt — like student loans, car loans, house loans, credit card debt, etc. Then, you subtract that debt from the total value of your assets (things you own and are worth money)— like a house, car, bank accounts, rental properties, jewelry, retirement fund, etc. This will give you your net worth.
For example, if you have a total of $100,000 in assets and $60,000 in debt, you have a net worth of $40,000. Net worth can also be negative, such as if someone has $10,000 in assets but $25,000 in loans, leading to a -$15,000 net worth.
Unlike a credit score, you don’t necessarily use your net worth to apply for items. However, it can indicate a person’s money stability to financial institutions, according to Gregg Bexten, regional president of Hawthorn Bank.
“Someone with a high net worth may find it easier to borrow money since they have assets that are available,” he adds.
“It’s important to understand your net worth over a period of time because it gives you a good scoreboard of what you’re looking at and your full financial picture.”
Cole Mertens;
Financial Advisor, Wallstreet Group
Growing Your Net Worth
So, you’ve done a quick mental calculation of your net worth, and maybe, you want to increase it. Start by setting a specific date, such as Dec. 31 or Jan. 1, each year to calculate your net worth. You will see how your financial health is progressing.“Net worth rarely lies,” Cole says.
Since net worth is a bird’s-eye view of your fi nances, Gregg and Cole add that it is not necessary to calculate your net worth every month. While calculating your net worth annually won’t directly grow it, you will be more aware of your finances and more likely to find ways to build toward your long-term goals.
“Just knowing your net worth, knowing your assets, knowing your liabilities, it gives you an understanding of where you are financially — where you were versus where you are now,” Gregg says.
After calculating your net worth, you can look at your income and expenses for that year. Are there areas where you could cut back on expenses or to increase your income?
“If you don’t know how much you’re spending every year, you don’t necessarily know where you can direct savings that will build net worth,” Cole says.
Having an understanding of your income and expenses can help motivate you to implement valuable practices that will accumulate net worth. The key to building and maintaining your net worth is making good asset purchases (meaning those that will appreciate in value),like a house or investments. It’s also vital you pay off your debts as quickly as possible.
Maybe you just did a quick mental calculation to figure out your net worth. Statistically, it’s not near the net worth’s of Musk, Bezos, and Winfrey — and that’s OK. There is no rule that says someone at a certain age should have a specific number. Net worth is relative to the person, and it should only be compared to your own personal goals.
“Whether you have a big net worth or a small net worth, it’s all a matter of perspective on how you live,”Gregg says.
“Whether you have a big net worth or a small net worth, it’s all a matter of perspective on how you live.”
Gregg Bexten; Regional President,
Hawthorn Bank
Securities and Advisory Services offered through CreativeOne Securities, LLC. Member FINRA / SIPC and an Investment Advisor. Wallstreet Group and Creative OneSecurities, LLC are not affiliated.
