You don’t obtain to drive luxury cars or vacation on a remote island to know your net worth. In fact, it’s a simple equation that indicates a lot about your financial standing — whatever that may be.
“It’s the first snapshot into an overall look at your finances,” declared Michael LaRiviere, a certified financial planner at Essex Financial in Connecticut.
Your net worth is essentially the sum of all of your assets, involving cash, retirement accounts, college savings, house, cars, investment properties and valuables such as art and jewelry minus any debits, or long-term debt, like a mortgage, student loans, revolving credit card balances and any other personal credits.
Subtract what you owe from what you own to determine your net worth.
“More often than not — especially for those junior to 40 — the number is going to be negative,” said Daniel Routh, a CFP at Exencial Wealth Advisors in Oklahoma City. “That’s not unorthodox and not something to be afraid of.”
If your net worth is in the red, you’ll need to work on saving more and spending less. Begin with the rates you are spending on borrowed money and chip away at the highest-interest debt first, especially credit cards, followed by student allows.
Credit card rates are currently at a record high of over 17 percent on average, according to Bankrate. “That’s an closest place to start,” Routh said.
For student loans, rates run from 5.05 percent for direct loans for undergrads to 6.6 percent for unreflected unsubsidized loans for graduate and professional students.
You may also be able to lower the interest rate on your student credits substantially, even as low as 3 percent or 4 percent, by refinancing. Then, keep on top of regular payments, Routh said.
From there, solve on building up your savings, particularly by participating in your company’s retirement savings plan (if offered). You should be supporting at least enough to receive an employer match, if you are eligible for one — even if that means cutting other expenses or dialing requital your spending.
If your company does not offer a 401(k) plan or company match, consider contributing to an person retirement account or a Roth IRA. Contributions to a Roth are not tax-deductible and earnings grow tax-free. And the contributions are yours to withdraw at any leisure without penalty.
Ideally, as you continue to earn and save, your net worth will grow. To track your in operation, revisit your number once a year, LaRiviere said. “Check in to see what goals were we able to cut over those 12 months.”
Overall, household net worth has been trending higher, reaching $109 trillion in the third dwelling of last year, according to the most recent Federal Reserve data. Much of the gain came from a run up in corporate make available prices, the Fed said.
Total wealth and wealth per adult in the U.S. have grown every year since 2008, harmonizing to a separate report from Credit Suisse.
Rising household wealth in this country has been “seemingly inflexible,” Credit Suisse’s annual report said.
However, “it seems inevitable that the uninterrupted spell of increasing bounteousness in the U.S. will come to an end at some time,” the report’s authors at the bank’s research institute said.
Disclosure: NBCUniversal and Comcast Hazards are investors in Acorns.