Net Worth Statement

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The process of calculating personal net worth may well be the only exercise in financial planning that savers and investors actually enjoy. It, with a personal cash flow statement, provides savers and investors with a financial scorecard of where you stand along the path of financial security.

“A personal income and expense statement [cash flow] goes hand-in-hand with a net worth statement because it allows you to see sources of income and expenses while working and retired,” David Bizé, a financial professional in Oklahoma City, Oklahoma, said. “It helps you determine how much can reasonably be saved for financial goals as well as project whether your financial goals will be satisfied long term.”

Calculate your net worth

A net worth statement is a list of what you own (assets) and what you owe (liabilities).

Your assets would include any possessions of value, including:

  • Bank and brokerage accounts
  • Real estate
  • Retirement accounts (IRAs and 401(k))
  • Pension plans
  • Stock options
  • Cash value life insurance
  • Other property, such as artwork

To estimate the value of the personal property in your home, a good rule of thumb is to use 25 percent to 30 percent of its fair market value.

Into the liability column falls any debt you may have, such as:

  • Mortgage
  • Car loans
  • Student loans
  • Credit card balances
  • Child support
  • Alimony
  • Back taxes
  • Medical debt

To calculate your net worth, simply subtract what you owe from what you own. If you own more than you owe, your net worth will be positive. If you owe more than you own, it’s negative.

Appearances can be deceiving, the numbers never lie. Your neighbor with the big house and the luxury cars, for example, may exude a high net worth lifestyle, but if they’re up to their nose in debt, or not saving for their retirement, they may have a smaller net worth than the family next door who lives more modestly.

As a rule of thumb, your net worth should be roughly equal to six times your annual salary by age 60, or that your net worth by age 72 (the new age at which required minimum distributions from your IRA must begin) should be 20 times your annual spending. Other financial pundits suggest that you should aim to be net worth positive by age 30, and have twice your yearly salary socked away for retirement by age 40.

According to the U.S. Federal Reserve, the average net worth of all families in the U.S. rose 26 percent to $692,100 between 2013 and 2016, the most recent year for which data are available.  But the average net worth by age group breaks down as such:

  • Younger than age 35: $76,200
  • Ages 35-44: $288,700
  • Ages 45-54: $727,500
  • Ages 55-64: $1,167,400
  • Ages 65-74: $1,066,000
  • Ages 75 and older: $1,067,000

The ideal net worth differs for everyone and depends on your lifestyle, geographic location, income potential, and investment returns. The age at which you plan to retire also plays a role. The longer you work beyond your full retirement age, the less you need saved.

At the end of the day, all that matters is that your net worth is appropriate for your future financial plans, your financial goals and your lifestyle.

References:

  1. https://blog.massmutual.com/post/net-worth-calculate?utm_source=facebook&utm_medium=social_pd&utm_campaign=brand_traf_contentsyndication&utm_content=static_election_6200129223294_learn&utm_term=demo_fin_int_all&fbclid=IwAR1x-0otWLiM1UTNrFC5pLTEcXYkRr-wls4qucKmW6VfVjCjSry1dZr4Frg
  2. U.S. Federal Reserve, “Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances. Table 2: Family median and mean net worth, by selected characteristics of families, 2013 and 2016 surveys,” September 2017.
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