One of the most basic measures of your financial health is determining your net worth—how much money you would have if you “sold it all today.” In other words, a value based on liquidating everything you own, paying all of your debts and starting from there.
In the early phase of adulthood or even in mid-life, the number is not that meaningful. Generally speaking, few, if any, of us are going to sell it all and move on to a different kind of life at that time. But it doesn’t hurt to check in on your net worth from time-to-time just to see what kind of progress you might be making with your financial life.
A simple and quick calculation
It generally doesn’t take long to determine your net worth. Basically, it involves two numbers:
• Assets – the best estimate of the current value of everything you own—cars, a home (if you own yours), investments, bank accounts, personal belongings (furniture, jewelry, art, other household items). Determine what you realistically think each could be sold for today and add those numbers together to determine the value of your assets.
• Liabilities – all outstanding debts you are responsible for. Determine what you owe on your mortgage, car loans, student loans, credit card debt, home equity loans and any other money you’ve borrowed and have yet to pay back. Add each of these numbers together to total your liabilities.
From there, you simply take all of the assets, subtract all of the liabilities, and what’s left is your net worth. The higher the number, the better off you should be.
Does it matter?
All of us want to see our net worth climb, but it doesn’t necessarily happen year-after-year. Changes in the stock market, the housing market or life in general can result in temporary setbacks. For most of us, your net worth starts to matter a lot more as you close in on retirement. Often a well-diversified portfolio can act as a good shield to help protect your assets against unplanned disruptions. Consider working with a financial advisor to help ensure your investments are in line with your financial goals, time horizon and risk tolerance.
William “Drew” Watson, CFP® is a Financial Advisor and Private Wealth Advisor with Ameriprise Financial Services, Inc. in Owensboro, KY. He specializes in fee-based financial planning and asset management strategies and has been in practice for 20 years. To contact us by phone, please call 270-684-8424 or by mail at 111 West 3rd St, Owensboro, KY 42303. You may also visit our website at www.williamawatson.com.