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Fail: Not understanding what net worth is and then taking 12 years to figure it out.
Flip: Tracking my net worth on Personal Capital and watching it grow!
It was 12 years ago that I sat across from my first financial advisor. I had no idea what I was really doing, but I knew that we had to open a retirement account for my husband, who at the time was a stay at home dad. As I sat there, I didn’t even know what account to open, but I figured that a financial advisor could help. But, I will never forget when he asked us what our net worth was. I had no idea how to answer that question and didn’t realize the importance of understanding it and how that would someday make a huge impact on me reaching my retirement goals.
I did feel kind of foolish as he led us through a series of questions, that we mainly guessed at, laughing nervously and hoping that we didn’t come across as total idiots. But we did walk away with a new Roth-IRA opened for my husband so I felt accomplished. Little did I know that I should have also focused on understanding what net worth meant, but I figured it out…12 years later.
Side Note: When working with a financial planner, make sure they are teaching you along the way. Ask lots of questions. And make sure they spend the time with you to help you understand everything!
You can read how we increase our net worth by $100,000 in one year here.
Simple Definition of Net Worth
The value of everything you own minus all your debts. That’s it. Not much too it, but you have to know the numbers.
How to Calculate your Net Worth
List all of your assets. This includes all of your savings, and any big items that you own worth money.
Start writing Assets in a column and include:
Bank Accounts – Savings, Checking, Money Markets, Etc.
Retirement Accounts – 401K, 403b, 457, Roth IRAs, etc.
Health Savings – HSAs or HRAs
Items that you Own and their current Worth –
House, Car, Boat, Cabin, etc.
List all of your liabilities. Liabilities would include all debts or money owed to somone else. Write down all of these in a column next to your assets.
Loans – Student, Personal, Car
Credit Card Debt
Subtract your liabilities from your assets and that will give you your net worth. As you can see from what you have listed, your net worth can change daily. If you start out with writing it down, it will give you a good idea of where you are at on average. There are also many ways to track your net worth online. I use Personal Capital and highly recommend it. It takes minutes to set up link all of your accounts. I log in about once a month to see where I am at. You can find the link here.
Here is an example:
401K – 23,000
HAS – $1,300
Savings – $5,000
House – (value) – $210,000
Car – $9000
Student Loans – $3,000
Credit Card – $1,500
Car Loan – $ 5,000
Mortgage – $120,000
Subtract : $248,300 – $129,500
Net Worth: $118,800
What if your net worth is negative?
Don’t worry because you may still be early in your career or getting started on your path and savings for retirement. You may have accumulated a substantial amount of debt and need to start working on paying that down or selling some of your items. Now you just need a plan to increase your net worth.
Learn how to set those long term goals with my 7 Day Free Course.
What is the average net worth and how do you compare?
In 2018, according to CNN Money, here is the average net worth for different age ranges.
25-34 – $9,000
35-44 – $52,000
45-54 – $100,000
55-64 – $180,000
65+ – $232,000
Keep in mind that the average savings rate is about 5.8%. This is actually lower than the recommended savings rate of 10-15% for retirement, so if you are above average, fantastic. Each person has their individual needs for retirement, and you should be working towards your own number. Click here to learn about how to calculate your own number.
How to build your net worth?
- Track your net worth – You need to know your numbers. Start tracking your net worth today. You can use your own excel spreadsheet, or you can find a free service online. I personally choose Personal Capital. It is free, and easy to use.
- Set goals to increase – One you understand your net worth and you have calculated how much you will need in retirement, then you can set goals to reach that amount. Click here to get my free 7 day course on setting your own long terms goals and how to break them into manageable pieces.
- Reduce Your Spending – Start looking at your spending now. Are there ways that you can reduce your spending that will allow you to put more towards debt or towards increasing your savings. Start with a budget. Here are simple tips to help you get started.
- Attack your debt– Start attacking your debt and understanding that there is no good debt. You can use different methods to help you with this. Set goals and attack them with all that you have! Start living on less and selling any extra items you may have accumulated in your life.
- Increase Your Savings – You can do this by taking money you have saved from reduced spending, or you can try to earn more by getting a promotion at work, or starting a side hustle. Whatever path you choose, increasing your savings rate will help increase your net worth in a compounding way.
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