Financial Net Worth

When assessing our financial health, we often think of our financial life in silos: investment and retirement account values, savings accounts, home equity, spending habits, debts, etc.

Tracking your net worth is one of the most important things you can do to assess financial health. It’s more important than how much you make or how much you spend.

Your net worth shows the result of the combination of spending, earnings, saving, investment returns, and debts.

Calculating Your Net Worth

The calculation is straightforward.

First, total your assets. Cash and investments accounts have a clear value. However, valuing real estate or businesses is more nuanced. I’d suggest being conservative with both.

You could use the low end of the Zillow Zestimate for your home. And if you own a business and haven’t done a valuation, you could use a conservative estimate of a multiple of revenue. The key is to be consistent over time.

I typically wouldn’t include personal assets, like a car, unless it was a collectible.

Then total your debts. Mortgages, business loans, student loans, credit cards, and auto loans are the most common.

Subtract your debts from your assets to get your net worth.

Tracking Your Net Worth

Now do this at least once a year to see your progress. Your net worth could vary over time.

You can do this with a personal balance sheet or use a digital tool. There are many online resources. All our clients have access to, which has a simple way to digitally view all of your assets and track your net worth.

Putting your Net Worth in Context

To make net worth more meaningful, think of it in terms of personal spending.

A net worth of $ 1 million  doesn’t mean a whole lot unless we have context. If a teacher had this net worth, we’d think she would be doing well. But if a professional athlete had this net worth, we might think he has a spending problem.

Age matters too.

The calculation is to divide your net worth by your annual spending to get a ratio. If you spend $75,000 per year then divide that by $1 million, you get 13.3.

This is the number of years your net worth can support your spending.

Now we have a way to measure financial freedom.

It’s crucial to keep track over increases in spending and net worth. Growth in both could mean you’re treading water. A spending cut will show up in the calculation, showing you how much closer you are to financial freedom.

Tax Shredding Event

We are hosting our annual Tax Shredding Event at Odd Muse Brewing Company, 4488 Spring Valley Road, Farmers Branch, TX. We’d love for you to join us for this come and go event. We’ll have beer, BBQ and a giant shredding truck for your tax documents.

Anyone is welcome, we just ask that you register so we have enough food and beverages.

Here are the details:

Tuesday, November 2

Odd Muse Brewing Company
4488 Spring Valley Road
Farmers Branch, TX

Andrew Eppes, RICP®

Andrew Eppes is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC. Nexus Advisors, LLC is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 14241 Dallas Parkway Suite 1200 Dallas, TX 75254 972-348-6300. The idea of retirement means different things to different people.  CRN202409-868034

Clear a Bold Path

Toward Total Financial Health