The road to financial security may be paved with a variety of investments and strategies. But before you travel too far, you may want to see if you’re headed in the right direction. Measuring wealth, or calculating your net worth, provides a better understanding of where you are financially and be better prepared to make important decisions about your future.
What exactly is net worth? It’s what’s left over when you add up all your financial assets and subtract all your financial liabilities or debts. Your financial assets may include money in bank accounts, stocks, bonds, mutual fund shares, assets in retirement accounts, and the value of any real estate you own. Unless you plan to sell your home and your car, you shouldn’t include them among your financial assets.
Your liabilities may include outstanding loans and credit card debt. Don’t include your mortgage unless you listed your home among your financial assets.
Once you tally up your net worth, whether the result is less or more than you expected, don’t be too alarmed or excited. Your net worth is only one measure of your financial health and your ability to meet long-term goals. It’s really just a starting point for a long-term financial plan. Once you put your net worth in perspective, you’ll be ready to develop and implement a suitable long-term financial plan with the assistance of a qualified financial professional.
This article is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Mike McCann, a member of FPA Arizona.