by Mark Attanasio
Even if you never actually see your paycheck and it is automatically transferred to your bank account each week, you may still know how much you’re making—maybe even down to the penny. Most people are fully aware of their income. But when it comes to net worth, the story is entirely different.
This is problematic because, unlike your income, net worth encompasses all your assets and debts. Calculating your net worth can provide you with a true measure of your financial well being, as well as providing you the information you need to improve your fiscal standing.
To help you figure out what you need to know about net worth, here are some of the questions others are asking too.
What, exactly, is net worth?
There is a simple formula that easily defines net worth. Add up all your assets—income, savings, investments and property. Then subtract all your existing debts. The total is your net worth.
When will I need to know my net worth?
While you won’t need to keep track of your net worth on a day to day basis, there are critical moments when it’s a good idea to have a firm grasp of your true value. You may want to understand the long-term trends for your net worth (how quickly you’re making or losing value) when planning your retirement or your estate. You may need it when looking to secure a mortgage or apply for student loans on behalf of your children.
I can’t touch my retirement accounts for 30 years. Do they count?
Your liquid assets are only one part of the net worth equation. Even if you don’t receive a distribution from your 401(k) or IRA accounts now, they’re still considered a part of your net worth.
Do I have the same net worth as my spouse?
Depending on how you and your spouse manage your household finances, your net worth may be identical or it could be drastically different. If you’re both listed as co-owners of your home, share a credit card or car, those assets will be attributed to both of you. If you both purchased vehicles separately, only the vehicle to your name will be considered for your calculation. However, if you add your partner’s net worth to yours, you’ll know your household net worth, which itself is important to track.
How do you account for outstanding car loans and mortgage payments?
When incorporating existing loans into your net worth calculation, you cannot truly consider houses or vehicles as assets until they’ve been paid for in full. So if you took out a $100,000 mortgage and have paid off $99,000, your home is still considered a $1,000 liability. But once you’ve made your last payment your home becomes a $100,000 asset.
Now that you have a better grasp on your net worth, stop by any office of The Milford Bank to see how you can continue to improve your financial standing today. You can also learn more at our online Learning Center or check out more financial calculators here.