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Why you should know your net worth

A simple calculation may help give you a clearer picture of your financial well-being so you can make more informed decisions about your future.

Keeping tabs on your financial health is essential to help in meeting your long-term goals. Whether you are saving for college or investing for retirement, tracking your net worth can provide an effective way to evaluate your overall financial standing.

Your net worth represents all of your assets minus any financial liabilities or debt. Maintaining a positive net worth not only keeps you on a positive financial course, it can help you qualify for loans and more attractive credit terms.

Tally your assets.

To calculate your net worth, begin by adding up the value of your largest assets including the value of your home. Keep in mind that the recent market downturn resulted in declining home values, so be realistic in your assessment.

Next, factor in the value of assets such as bank and mutual fund accounts, CDs, cash and retirement savings. Be sure to include the current market value of any stocks, bonds and pension benefits. Finally, consider including any personal items of significant value such as a boat, cars, jewelry or collectibles.

"Have a clear understanding of the value of your home, inheritance and any non-retirement-related assets," says Bob Trethewey, at SageView Advisory Group in Washington, D.C.

Knowing what you own is important for retirement planning purposes. Once you are no longer working, you'll need to draw on the components of your net worth to meet everyday living expenses.

Subtract your liabilities.

The next step involves itemizing all of your financial liabilities — or money that you owe. This includes:

  • Mortgage balances
  • Auto loans
  • Credit cards, student loans and any other outstanding debt
Net Worth = Total Assets - Total Liabilities

As you total your liabilities, examine how much debt you're carrying now. While low debt levels are manageable, higher amounts may impact your long-term plans. Consider how paying down debt could increase your ability to enjoy retirement.

Now subtract your total liabilities from your total assets. This figure is your net worth.

Track your progress.

Repeating this exercise at least annually can help you compare the figure with the previous year's calculations and measure progress.

Remember, determining your net worth is more than coming up with a number. It's also a benchmark for gauging whether or not your assets are increasing over time. If you're moving in a positive direction, great. However, if your net worth is only holding steady or declining, you'll want to identify the causes and take action.

"Stay disciplined, keep debt to a minimum and establish a target when you hope to reach your financial goal," says Trethewey.

Take charge of your future.

A financial professional can help you take charge of your financial plan.

And check out our interactive retirement planning tool[1]. It can help give you perspective of your current retirement savings as you determine the actions you may need to take, over time, to save for a more secure retirement.

 

[1]
My Principal® Edge Milestones not available online for all participants.

Bob Trethewey and SageView Advisory Group are not affiliated with the Principal Financial Group or any of its member companies.

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

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