CI Dowling & Yahnke Wealth Planning

How to determine your net worth

A number of factors influence your net worth, which is a metric used to gauge your financial health. Calculating net worth gives you a sense of how your assets stand compared to your liabilities (i.e., debt). It can be a major factor in helping you make financial decisions at different points in your life. Here’s what you need to know about determining your net worth.

Understanding net worth

Simply put, net worth is the difference between your assets and liabilities. If the value of your assets exceeds your liabilities, you have a positive net worth. Conversely, if your liabilities exceed your assets, you have a negative net worth.

Ideally, your net worth grows over time. Having a strong net worth is a good indication that you’re well prepared for both financial emergencies and retirement. Regularly calculating your net worth can help you determine how close you are to reaching certain goals. If your financial picture changes, you can always recalibrate your spending and saving based on new priorities. 

How to calculate net worth

Calculating net worth is fairly simple. Just subtract your total liabilities from your total assets. As an equation, it looks like this: Assets – Liabilities = Net Worth.

When starting your career, calculating net worth is typically easier than it is later in life. The median net worth1 of individuals age 35 or younger is just $13,900. By the time you advance further into your career and begin earning more, you’re also accruing wealth and managing it differently. Calculating net worth is less straightforward when dealing with a variety of asset and liability types.

Tangible vs. intangible assets

To calculate your net worth, start by adding up your financial assets. A general net worth statement includes all of your assets. But you can also calculate your “tangible net worth,” which focuses solely on physical assets. Tangible assets include cash, real estate, investments and personal property that holds value (like art or jewelry).

Intangible assets are not physical in nature. This category includes things like intellectual property, copyrights and patents. Intangible assets aren’t always included in net worth, especially in the eyes of a lender. Although these types of assets hold value, it’s difficult to liquidate them or even accurately quantify their value.

Types of tangible assets

As you gather the value of your tangible assets in the context of your current financial situation, you can break them into three sub-categories:

  1. Liquid assets include things like cash, your checking and savings account balances, certificates of deposit and money market accounts. The more liquidity you have, the better you can handle emergencies or other unexpected expenses.
  2. Investments include stocks, mutual funds/ETFs, retirement accounts, bonds, annuities and the cash value of any life insurance policy you hold. Use the current market value of each asset when calculating current net worth. Depending on the markets, the value of these assets will change – sometimes dramatically.
  3. Tangible assets include real estate and personal property. Estimate the value of any homes and land you own. Also include the value of property such as jewelry, art, automobiles, boats, motorcycles and the like.

Determine your liabilities

After adding up your assets, it’s time to calculate your liabilities to determine your net worth. Create a master list of all your outstanding debts, then refer to your latest statement for the most recent balance. Repeating this process every time you calculate your net worth will give you a reasonably accurate understanding of your liabilities.

Secured vs. unsecured liabilities

As you gather information on your liability details, break them into two categories: secured and unsecured. A secured debt means there’s some type of collateral to back the loan (e.g., your home or other owned property), while unsecured debt has no collateral.

Secured loans include mortgages, home equity financing, auto and boat loans, mortgages on vacation or rental properties, and margin loans (i.e., loans secured by holdings in an investment account).

Unsecured loans include credit card debt, student loans, outstanding medical bills, most personal loans and overdue taxes.

Although secured and unsecured loans are weighted equally when calculating net worth, categorizing them gives you deeper insights into your true financial picture, which is really the objective of knowing your net worth.

Two ways to track your net worth

Calculating net worth shouldn’t be a one-time event, as finances don’t remain static. Instead, create a system to log and track your net worth on an ongoing basis. This gives you historical perspective not only to see where you are today, but also how much progress you’ve made. You can track your net worth manually through a spreadsheet or automatically through a mobile app or computer software.

Spreadsheet

It’s easy to create a net worth spreadsheet. You’ll need to manually update your account details, but this process can help ensure every detail is accurate. You may create your own net worth tracker or download a template for your preferred system, such as Excel or Google Docs.

Customize your asset and liability lines, then update the balances whenever you want to calculate your current net worth. The spreadsheet can automatically update the sections with formulas, such as total assets, total liabilities and estimated net worth.

Mobile app/computer software

If you prefer an automated approach to tracking net worth, try using a mobile app or computer software program. These platforms typically allow you to link your bank and brokerage accounts so you can see all of your current balances in real time, all in one place.

The drawback is that these automated programs don’t include certain assets and liabilities. You may need to manually account for some missing pieces, such as your mortgage and equity, personal property and any loans that don’t connect directly to the app.

The bottom line

Whatever method you choose for tracking net worth, it’s a good habit to maintain. Working with an expert financial advisor can also help you navigate the process, especially as your financial situation becomes more complex.

CI Private Wealth advisors always provide regular check-ins to review your investments and overall net worth. Together, you can prioritize your financial goals and create a personalized plan to achieve them.

Schedule an appointment with a CI Private Wealth advisor to get professional help managing and growing your net worth over time.


ABOUT THE AUTHOR

Dowling & Yahnke is a fee‐only registered investment adviser. Since 1991, Dowling & Yahnke has provided time-tested, objective financial planning advice and investment management services designed for the financial health and personal freedom of its clients. Located in San Diego, California, the Firm manages approximately $5.7 billion for more than 1,300 clients, primarily individuals, families, and nonprofit organizations.

Our team consists of highly-educated, experienced, and ethical professionals devoted to the highest standards of client service. We design custom wealth management solutions delivered with the highest level of personalized service.




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