Do you know your net worth?
According to the Association for Financial Counseling and Planning Education, only 5% of people know their net worth. That number just seems crazy to me!
However, I believe it.
There have been many times when someone has told me that they have no idea how much debt they have, how much money they have saved, what their assets are worth, and so on.
Even more shocking, some can’t even give me an estimate and have no clue whatsoever about what the amount would be. Or, when they do give me a number, their significant other chimes in about how they are extremely wrong.
This is something that definitely needs to change.
Net worth is a very important measure of your financial situation, and it is something you should be aware of.
There are many positives to being aware of your financial situation and net worth, such as:
- Knowing your net worth will help you manage your money better. If you know what your net worth is, you may be more mindful of your spending and other financial decisions, such as with keeping a budget. After all, if you have a negative net worth or if it's not as high as you hope, then you will probably be quite motivated to work on changing that for the better.
- Your debt matters too. Many people only think about what their assets are and base how well they are doing on just that. However, your debt plays a big factor! If you have a lot of debt, do you really think you are doing all that well?
- Knowing your net worth may stop financial infidelity. Yes, knowing your net worth can help you be aware of your financial situation. If you are unaware, then the possibility of financial infidelity is higher.
- Being aware can help you with your financial goals. Like I said above, knowing your net worth is a great measure of how you are doing. If you know how you're doing, you can be more motivated with your goals. Plus, knowing your net worth just makes sure that you are more aware of what's going on!
Overall, it's good to know your net worth because you'll be able to see a full picture of your financial situation, which will help you work towards realistic financial goals.
See, you might think that you are doing well financially, but there is a chance that you haven't looked at the complete picture. I know people who think they are doing great, then they figure out their net worth only to realize that it is negative because they didn't account for their debt.
Think about it: You might have $100,000 in assets, but if you have as much in debt, are you really doing that well?
This is where knowing your net worth is especially important. It is a great measurement of how you are doing financially.
What's the average net worth?
Below is a very (VERY!) simple comparison of net worth by age range. While this isn't perfect, it can tell you how you compare to others in the United States.
Now, these numbers aren't the greatest, but they can be a good start.
If you want to be even better than the average, though, I highly recommend reading The Average Net Worth For The Above Average Person on the Financial Samurai website. This is an excellent article that can help get you motivated to improve your finances.
According to Financial Samurai, the average net worth of the above average person is
- $79,000 for a 25 year old
- $250,000 for a 30 year old
- $660,250 for a 40 year old
- $2,871,500 for a 65 year old
I'd love to hear what all of you have to say about the “above average person” in the comments below.
How to calculate your net worth
You can calculate your net worth by totaling all of the things you own (your assets), such as:
- The market value of your home. Determining the value of your home can be done by using Zillow, comparing it to similar homes, and so on.
- The value of your car. You can use Kelley Blue Book to determine this.
- The amount in investments, such as retirement accounts
- Checking and savings accounts, cash, certificates of deposit, etc.
Then, subtracting all of your debt (your liabilities), such as:
- Car loan
- Credit card debt
- Student loan debt
- Medical debt
- Other debt
And then you have your net worth.
Here's a quick equation:
Total Assets minus Total Liabilities = Your Net Worth
So, if you have $100,000 in assets and $100,000 in liabilities, that means your net worth is $0.
If you have $10,000 in assets and $50,000 in liabilities, that means that your net worth is -$40,000. Yes, you can definitely have a negative net worth.
How often should you calculate your net worth?
I believe looking at your net worth once per month is a good idea. You can look at your budget and net worth at the same time, which will help you see what you need to improve on and change.
That being said, there will be fluctuations from month to month, as the stock market goes up and down, home values change, and so on. However, it is still a great measure of personal wealth and I highly recommend keeping track of it.
It's quite easy to look into this once a month, especially if you use Personal Capital (more details on this below).
How to improve your net worth.
If your net worth is negative or if you want to improve it, there are two things you can do and those are increase your assets and decrease the amount of debt you have.
To do this, there are many things you could do such as:
And so on!
You need this simple tool for your net worth.
I recommend you check out Personal Capital for a better measurement of your financial situation and net worth.
Personal Capital is similar to Mint, but much better. Personal Capital allows you to aggregate your financial accounts to easily see your financial situation. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more. And, it’s FREE.
With Personal Capital, you can link all of your accounts for a complete picture of your net worth and financial situation.
I absolutely love Personal Capital and highly recommend it.
Do you know your net worth? Why or why not?
Subscribe to get the free Master Your Money course!
Join the free email course and finally learn how to manage your money better, pay off debt, save more money, and reach financial freedom. Get our newsletter and get access to the freebie: