Are you looking to get your finances in order? Do you want to know more about your net worth? You might have heard these—boost your self-worth, grow your net worth (according to Nancy Levin); your network is your net worth (according to Porter Gale); and “Make it a policy to know your net worth to the penny,” says T. Harv Eker. But is it all about monetary value? Why is this concept important?
Net worth refers to total assets minus debts. It is a measure of financial health and stability, and it is an important indicator of one’s economic success. While many factors contribute to an individual’s net worth, a study in 2016 suggests that having a sense of purpose in life may be an important predictor of financial success. Money is a metaphor for abundance, so a “high” net worth is not just about money, but the feeling of having plenty of options and possibilities in life.
We’ll provide an overview of what net worth is, how it’s calculated, and how understanding your net worth can help you better manage your finances.
What is Net Worth?
“Most of us never think to assess our net worth in our twenties or thirties. We’re just getting started in our careers and possibly building families, and so things like net worth don’t usually take priority,” says Greg Lavelle, CEO of Corporate Benefit Plans and Financial Square.us. “Why is net worth important? Essentially, your net worth determines the lifestyle that you can live. That’s a bit blunt, and might feel a bit intimidating to some, but it’s the truth.”
Net worth is used to measure your financial health and progress. It is simply the value of all the assets you own, minus any liabilities or debts you owe. This figure can give you a good indication of your overall financial position and help you manage your money and assets more effectively. Understanding what your net worth is and how to calculate it can be a great way to get a better handle on your finances.
We have written “Five Things Your Employees Need to Know About Their Benefit Options” to help you enhance the net worth of your employees. Offering sought-after benefits like retirement plans can make a significant difference.
Understanding Assets and Liabilities
Calculating your net worth can give you a good indication of your financial health. To do so, take inventory of all your assets and liabilities.
Assets are anything you own that has monetary value, such as cash, investments, and property. Liabilities are any debts that you owe, such as student loans, credit card debt, and mortgages.
Your net worth is the difference between the total value of your assets minus the total amount of liabilities.
After you’ve calculated your net worth, you can use it to see how close you are to achieving financial goals such as paying off debt or building up an emergency fund.
“The way that I know how to get ahead financially is to invest in assets. I started investing in assets when I was six years old. I started my baseball card collection, which I sold when I was 15 years old. I partnered with two of my friends and we sold this collection for $4,000. I got a little over $1,300. That was my share and what did I do with that money? Instead of going and buying other assets, I blew all the money. I spent it on stereo equipment, sporting events and other things, and the money was gone,” shares Eric Lofholm, a sales trainer, author, and business coach.
It is a good idea to keep track of both assets and liabilities in order to get a better picture of your overall financial health. You can use this information to make informed decisions about how best to increase your net worth and build wealth.
On the other hand, you might be wondering about work assets and liabilities, like office space. In that case, you can check out our article “Why The Future Work Space Should Focus on Outcomes“.
What Does Your Net Worth Say About You?
Your net worth is a reflection of your financial health, and it says a lot about your current lifestyle. It can tell you if you’re on the right track with your money management or if you need to make some changes.
If your net worth is increasing, it could indicate that you’re making smart financial decisions and managing your money wisely. On the other hand, if your net worth is decreasing, it could be a sign that you need to adjust your budget or look for ways to increase your income.
Your net worth can also give you an indication of how wealthy you are when compared to others, and provide an insight into how much progress you’ve made on your journey to financial freedom.
“An annual wealth survey by Charles Schwab focuses on net worth, asking what level of personal net worth would constitute wealth, what level would result in financial happiness, and what level would be considered financially comfortable,” Rick Kahler of the Kahler Financial Group, explains.
“The average net worth considered ‘wealth’ was $1.9 million this year (2021), down from $2.6 million in January 2020. The average net worth for ‘happiness’ was $1.1 million, down from last year’s $1.75 million. The amount for ‘financially comfortable’ was $624,000, down from $934,000 last year.”
No matter what number comes up when calculating your net worth, it’s important to remember that it’s just a snapshot in time and can be changed with the right actions.
The Benefits of Knowing Your Net Worth
Certified financial planner Rick Kahler advises, “Withdrawing a sustainable lifetime income of $76,000 from [a] $1.9 million portfolio would actually allow the portfolio to grow to keep pace with inflation. In 30 years, its income would be $159,000. Knowing your net worth can be one tool to assess whether you are on track in preparing for retirement. The more significant information, however, is a realistic estimate of whether that net worth can provide a comfortable and sustainable income.”
Knowing your net worth is a great way to stay on top of your financial situation and ensure that:
- You’re always making progress
- You are able to identify areas where you may be spending too much money and make changes accordingly
- You are aware of your overall financial stability
Overall, it’s a great road map to building wealth by reducing spending, increasing saving, and investing wisely. With net worth as your guide, you’ll have the insight needed to live comfortably and if you wish, to create a lasting legacy for future generations.
How to Increase Your Net Worth
Don’t be afraid to play the long game. Set long-term goals and take small steps toward achieving them.
You’d also have to look at your assets and liabilities. Analyzing what you own and owe can help you get an idea of how to best use what you have to maximize your wealth.
Viable options for those who want to take their net worth to the next level include:
- Creating a budget
- Paying off debt
- Investing in stocks and real estate
- Making passive income
- Hiring a financial expert
- Starting an emergency fund
Business coach Daniel Ally ponders, “I have assets that cannot be measured. For instance, I have invested years into developing my understanding in business. I consider my mindset my largest asset, but it cannot be evaluated by any human standards. However, I can generate thousands of dollars any day I choose. Therefore, my wealth fluctuates because it is always changing like the Earth.”
Whatever your current net worth is, consider intangible factors that contribute to your overall value as well. If you are an employer, it’s important to recognize that your employees can be one of your most valuable assets. Investing in their continuous training and development can be crucial to the success of your business. Read more on “How to Upskill Your Employees”.
Create a budget
Increasing your net worth can be done in a number of ways, but the most effective and efficient way is to focus on building wealth. This means budgeting effectively and cutting down on unnecessary expenses.
By knowing how much money is coming in and out of your household each month, you can make sure you’re living within your means and saving enough money for future investments.
Start by calculating your monthly income and tracking your daily expenses. Then, determine how much you should be spending on necessities like food, rent, and utilities, as well as discretionary spending like entertainment and vacations.
Start an emergency fund
Once you have an understanding of your net worth and you’ve established a budget to help you save and pay down debt, it’s time to start an emergency fund.
An emergency fund is essential for protecting yourself against life’s unexpected costs. It can help you avoid going into debt when an unexpected expense arises. It can also provide peace of mind that you have the financial resources available in case of an emergency.
The amount you should save depends on your income level and other factors, but it is typically recommended that you save at least six months’ worth of expenses in an emergency fund.
You can start by setting aside a small amount every month until you reach your goal, or consider transferring money from your regular savings account into a dedicated emergency fund.
According to mortgage broker Carmen Dye, “There are a lot of components that come together to build financial security – a healthy emergency fund is one of them (adequate insurance and getting out of debt are two others). An emergency fund takes the stress and worry out of an uncertain future.”
Pay off debt
Strive to pay off any debt you have as soon as possible and start an emergency fund as a safety net. Simple rules to follow:
- Target debt with highest interest rates first.
- Prioritize loans with lower balances.
“A lower debt burden means a higher net worth and the vice versa is true. Reducing your expenses is easier said than done, but it’s a great way to help boost your net worth. A great tip on how to start spending less is to avoid the use of credit cards in favor of cash,” suggests Luis Rosa, founder of Build a Better Financial Future.
“A large bulk of uncontrolled debt comes from the use of credit cards. Avoid storing your money in checking accounts or lower yielding savings accounts where it earns very little interest. Instead, keep the money in interest-bearing accounts such as high-yielding savings accounts or money market accounts. This is one of the simplest ways to increase your net worth.”
Invest in Stocks and Real estate
Investing in stocks and real estate can provide a powerful combination of long-term growth potential and passive income. Stocks have the potential to generate long-term capital appreciation, while real estate can provide a steady stream of rental income as well as appreciation over time.
While investing in these assets does not offer a quick path to wealth, a strategic approach can help you slowly build your net worth over time. It’s important to do your research and invest wisely, considering factors such as the company’s financial health and growth potential for stocks, and the location and condition of the property for real estate.
Diversification is also key to managing risk and maximizing returns. By investing in a mix of stocks and real estate properties, you can spread out your investments and potentially minimize the impact of market fluctuations on your overall portfolio.
“The end goal for any investor or company owner is always to increase their net worth. For many investors and entrepreneurs, building a self-supporting business portfolio with substantial returns is the primary challenge. Increasing your business’s net worth is something that won’t take place overnight,” Joshua Maddux, CEO of a web design, web development, and branding firm, claims. “Increasing assets involves increasing the money-making aspects of your business so they can exceed your costs.”
Make Passive Income
Building wealth means investing your money in the right places in order to generate passive income.
“If you’ve been wanting to make more money, there are a few ways to do so. One of the most straightforward and easiest methods is by building your own passive income stream through things like rental properties or other investments that generate revenue without requiring much time commitment on behalf of themselves,” nationally syndicated Wall Street radio host Abhi Golhar reveals. “Passive income isn’t as easy to come by though. Some people assume that they can just sit back and make some money via investments or real estate flipping—but these are all complacent forms of work where you don’t have any control over your destiny other than waiting for things to happen instead of making them happen yourself.”
Other suggestions include:
- Creating and selling digital products
- Earning royalties from creative work
- Having a side hustle, such as monetizing a blog or YouTube channel
With a bit of research and effort, passive income can be an effective way to grow your net worth over time.
Boosting your Retirement Contributions
To increase your net worth, aim to save at least 50% of your income for retirement through a 401(k) plan or other savings account by the age of 30. For instance, if you earn $50,000 in your 20s, aim to achieve a net worth of $25,000 by the time you reach 30. This strategy can help you establish a solid financial foundation and achieve long-term financial security.
Make sure to take advantage of tax-advantaged savings accounts like IRAs and 401(k)s, too. However, you have to consider individual circumstances and set realistic goals that align with your lifestyle and financial situation.
By focusing on these key areas, you can improve your financial well-being and work towards achieving long-term wealth and security. It’s important to regularly assess your net worth and adjust your strategies as needed to ensure continued progress towards your financial goals.
Additionally, if you are a business leader, you can empower your employees to increase their net worth. Head on to “Creating a Culture of Wellness for Your Team” for tips. By prioritizing financial education and support for your workforce, you can help build a more financially stable and successful team.
Self-Worth, Network, and Net Worth
Knowing your net worth is the first step towards financial freedom and stability. However, we do not live in a vacuum. Increasing net worth isn’t just about changing what you do, but also working on how you feel. The road to financial security requires more than just knowing about where to invest your hard-earned money or creating a budget.
Building a solid foundation for achieving personal and professional goals is crucial, but many people allow their relationship with money to hold them back from fulfilling their dreams. Whether it’s overspending or fear of financial insecurity, an unhealthy attitude towards money can create barriers to success.
To overcome these barriers, it’s important to break down the limiting beliefs and negative attitudes that are holding you back. This involves taking a hard look at your relationship with money and identifying any behaviors or beliefs that may be causing financial distress.
It can be tempting to make decisions based solely on financial gain or what you think you should do, but this can lead to a lack of fulfillment and purpose in life. Understanding your values and priorities can help make decisions that align with your purpose and bring you closer to your goals. This can include:
- Making career choices that are in line with your passions and strengths
- Investing time and energy into relationships that bring you joy
- Prioritizing the activities and experiences that make you happy
More importantly, our self-worth is not defined by the things we buy or the money we have, but rather by who we are as individuals. Taking control of our finances requires us to take control of our lives as a whole.
In summary, it’s important to be aware of your net worth so you can make informed decisions and work towards financial freedom. With the right mindset and a commitment to your financial future, anything is possible.
What is the average net worth of Americans?
Based on the 2019 Federal Reserve data, American families have an average net worth of $748,000 but it’s skewed due to the most affluent households. A better way to understand how much money the average American has is to look at the median net worth of U.S. households, which is $121,700.
Who is the world’s richest man?
Elon Musk, the richest American with a $193 billion net worth, lost the unofficial title to French billionaire Bernard Arnault, the chief executive of Moët Hennessy Louis Vuitton, who was named the world’s richest person in December 2022 with a fortune of around $212 billion. (Source)