There are four reasons why you should determine your net worth. Net worth is an easy calculation to make because it is determined by subtracting your total liabilities from your total assets. Just knowing your current financial status is important information for planning your future, and it is also important in determining investment plans you might want to make. When considering the value of your assets, the following guidelines will be useful:
– Cash value of life insurance
– Net equity in your property
– Bluebook value of vehicles
– Use only the appraised value of antiques and art work
– Current value of 401Ks and other investment accounts
– Savings and checking account balances
Use the following guidelines to determine liabilities:
– Mortgage balances
– The balances on all loans and credit cards.
– Taxes owed
– Property liens
– Student loans
– Any other financial obligation
These are the reasons why you should want to determine your net worth:
Achieve a Better Understanding of Your Current Financial Status
Everyone needs to know how their income is being utilized. Understanding your debt to asset ratio will enable you to assess what changes you may want to make to increase the effective utilization of your resources. Once you have established this benchmark, you can use it as a baseline against which you can measure future financial progress. it is good planning to determine your net worth every year because net worth is a good personal finance tool. It is also a measure of financial health.
It is becoming increasingly important for individuals to create their own retirement funding plans. Companies are ceasing to fund corporate-sponsored plans, and many companies never began employee retirement plans. Once you determine your net worth, you can begin to understand how you can use your assets and future income to establish a secure retirement.
Determining Investment Potential
If you are contemplating making investments in any securities, bonds, annuities or property, then you will need to discuss your net worth with a qualified financial planner. They can help you determine your risk level and the type of investment you can comfortably make.
Unfortunately, there are occasions when people die at a younger age than the mortality tables would indicate to be the average age. It is never too early to make an estate plan to ensure that your assets will go where you want them to go.
You may find that your net worth raises questions about whether you need to have a different tax strategy. For example, are you investing the allowed limit in tax deferred investment accounts for you and your spouse? Are there different deferred income investment plans available?
Disclaimer: This article is intended to provide a general summary of laws in the State of California and should not be construed as a legal opinion nor a complete legal analysis of the subject matter. Noelle Minto is an attorney at NM Law, APC in Tustin, California, a law firm specializing in Trusts & Estates and Business Transactions.