What is Net Worth?
The definition is your assets minus your debt. Assets can be things you own that have a cash value, actual cash in the bank or even the cash value of insurance policies. Your debt is anything you owe to another party.
Here are some common forms of assets and debt.
Assets (what you own):
- Real estate
- Cash (checking/savings)
- Investments (stocks/bonds/interests in a business)
- Retirement accounts
- Cash Value of insurance policies
Debt (what you owe):
- Car loan
- Student loan
- Credit card debt
- Medical debt
- Family loans
As an indicator of financial health, it is ideal to strive for your net worth to be a positive number, meaning you should own more than you owe. It will be different depending on your age and it is not uncommon for it to fluctuate over time. As an example, if you purchased your home with a mortgage, it can take time for the loan to be paid down and the equity to build. Also, it is best to think of your net worth statement as a snapshot in time as spending and inflows during a month can affect account balances day-to-day. To best value assets like your home or car, you can use websites that specialize in giving live price quotes. For Pathstone clients, the easiest way to calculate your net worth is to utilize the Net Worth Balance Sheet that we have created and provided to you. You can also use this calculator.
How Can You Achieve Your Long-Term Goals?
Now that you have the steps to determine your net worth, you can begin creating long-term goals. Perhaps you would like to contribute more toward your retirement, begin a college savings account for your grandchildren, or diversify your investments to create more passive income. Regardless of your goals, we encourage you to reach out to your advisor who can help tailor a financial portfolio to fit your goals. If you have any questions, we are here to help – contact us.
In case you missed it, check out the first part of our Financial Literacy Series: Budgeting with a Goals-Based Strategy.
Please see the PDF version of this article for important disclosures.