How much are you worth?
No, we don’t mean how wonderful, smart and valuable you surely are to your family. We’re talking net worth, an important guidepost on your road to financial security.
Keep reading for everything you need to know!
What is net worth?
Simply put, net worth is how much you have minus how much you owe. Also known as net wealth, this is a snapshot of your financial position and could be important in helping you qualify for some financial products or investment strategies.
How do you calculate net worth?
You can determine your net worth by subtracting your liabilities from your assets. Here’s how to do it:
- Add up the value of all your savings, investments, property and other big assets.
- Subtract from that number your debts, such as credit card balances, mortgages, auto loans, student loans or personal loans.
- The resulting number is your net worth. Keep in mind that net worth can be positive or negative.
Consider this example of positive net worth:
Larry and Susan have a primary residence valued at $350,000, an investment portfolio with a market value of $100,000, and automobiles and other assets valued at $35,000. Their liabilities include an outstanding mortgage of $85,000 and a car loan of $17,000.
Their net worth is calculated as:
[350,000 + 100,000 + $35,000] – [$85,000 + $17,000] = $383,000
Now check out this example of negative net worth:
Jeff and Rachel have a primary residence valued at $245,000, an automobile valued at $30,000, and $4,000 in savings. Their liabilities include an outstanding mortgage of $200,000, a car loan of $20,000, student loans totaling $85,000, and $5,000 credit card debt.
Their net worth is calculated as:
[$245,000 + $30,000 + $4,000] – [$200,000 + $20,000 + $85,000 + $5,000] = -$31,000
What does my net worth number mean?
Net worth that’s positive and increasing indicates strong financial health. On the other hand, if you have a negative or decreasing net worth, that means your liabilities are greater than your assets and you should evaluate your finances and draw up a gameplan that helps you decrease your liabilities.
Keep in mind that negative net worth is common among younger adults, especially those with student loans or those who have just taken on a new mortgage. If your net worth isn’t where you’d like it to be, you have time to pay down your debts and increase your assets!
How can I improve my net worth?
In order to improve your net worth, you must increase your assets or decrease your debts. Focusing your energy on debt reduction through budgeting and debt reduction strategies is usually the best place to start.
How does net worth impact my retirement?
Net worth is a marker of financial health, but it doesn’t necessarily determine your quality of life in retirement. That’s because the most important factor in a financially secure retirement is typically income, not net worth. For example, a retiree with relatively low net worth could have a very secure retirement if she has a pension or other steady income stream covering her living expenses.
However, understanding your net worth and the value of your assets can help if you end up facing a large expense in retirement, such as long-term care. Where can you get the money to pay for it? Could you raise money by selling assets? Understanding your investments and home equity can help you see the resources available to supplement your income sources like Social Security.
Take control of your financial future with Bankers Life Securities.
Do you have questions about your net worth? Our investment professionals are here to help you develop a customized strategy that improves upon your financial security.
