Midwestern Financial Group I Fiduciary Advisors I Wealth Management


Best 2015 New Year's Resolution: Net Worth Statement

As 2014 closes, New Year's resolutions for 2015 form. Every year many set goals to improve their finances, however, the follow-through likely fails. There are many reasons, but one is most individual’s inability to make sense of their goals and track progress.

Here is a solution that I use this with many clients and the results are positive. Tracking your net worth helps focus financial decisions and seeing the results reinforces the positive changes. 

Whether you are a recent high school or college graduate or taking control of your finances after years of work, the best place to begin is with your net worth. Net worth is defined as the sum of your assets minus the sum of your liabilities.

To begin, in a spreadsheet software (ex. Microsoft Excel) or in a notebook record all your assets and add them together. Assets include, but are not limited to checking and saving accounts, 401(k)s, Roth IRAs, other retirement accounts, the market value of your home and automobiles, or gold coin collection value.

Next, list your liabilities, also known as debts. Liabilities can include your mortgage, car loans, student loans, credit card balance, or other debts you may have.

Last, subtract the sum of your liabilities from the sum of your assets. The number you calculate is your net worth.

So, what are you worth? Do you have a positive or negative net worth? If you are young or recently out of college, a negative net worth is typical. Student loans will outweigh your assets. On the other hand, if your middle aged, your assets should dramatically outweigh your liabilities.

As a general rule, for someone wanting to retire immediately who has $75,000 of income, he/she should have at least $1 million dollars of investable assets. This is with the assumption that Social Security will account for $25,000 with of income per year.

In order to get to retirement -to get to the $1,000,000 needed to retire- you have to focus on your net worth decades in advance. With every financial decision you must ask yourself, "What will this do to my net worth?" Paying down debt increases net worth; as does saving money in retirement accounts. Therefore, do both in order to compound your money in retirement accounts.

Midwestern Financial