It stands to reason, the higher your net worth, the better off you are today and for the future. While this may be true, local advisers say what's more important is that your net worth shows whether you’re on track to reach your personal goals.
Simply put, your net worth is how much you own minus how much you owe, explains Richard Baldwin, owner of Baldwin Wealth Management. Assessing this number year after year can help you track your financial progress. To determine your net worth, individuals need to subtract liabilities from assets, says Maurice Quiroga, executive VP and managing director at PNC Wealth Management. Whether you are using the assistance of online tools, consulting a financial adviser, or calculating your net worth yourself, the first step is to find the amount of your total assets:
• Estimate the worth of your largest assets, such as your home and vehicles.
• Add your liquid asset statements, including checking and savings accounts, cash, investments and retirement accounts.
• Also add any personal items of significant value, such as jewelry.
Next, calculate your liabilities:
• Estimate the balance of your outstanding liabilities, such as mortgage and vehicle loans.
• Add your personal liabilities, including credit cards and student loans.
Lastly, subtract your total liabilities from your total assets to find your net worth. This process can be repeated annually and compared with last year’s number to determine if you are getting closer to your financial goals or falling further behind.
For those who don’t have the time, inclination or tools to determine their own net worth, they may consider hiring a wealth adviser, Baldwin says. “There’s a particular tool that we use: the Monte Carlo analysis. It can help analyze your net worth in conjunction with your spending and saving habits to give you an idea of whether or not you’re on track.” The target number for your net worth will be different for everyone, as each individual has their own goals, Baldwin notes.
Quiroga adds that it’s important to know your net worth—particularly for high net-worth families—today and down the road, especially when it comes to retirement planning. “Your net worth shows how much money you owe and to whom you owe. It really opens people’s eyes to the amount of debt they have, so they can ultimately work on a strategy to pay that off over a period of time.”
As your life goals change and the economy fluctuates, advisers agree maintaining a handle on your net worth can ensure smooth sailing today and into the future. “Knowing that number will help you become a savvier planner,” Quiroga notes.