Calculating Your Financial Wealth: A Simple Guide

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Your worth is far greater than just your financial wealth. Your true wealth includes your experiences, knowledge, values, and moral guidance, as well as your financial assets. However, financial wealth does play a crucial role in many aspects of life. Whether you’re applying for a mortgage, buying a car, or planning your estate, it’s your financial situation that matters most. Your family will rely on your financial assets to cover expenses in your absence, and taxes are levied on your financial wealth, not your life experiences. When it comes to estate planning, your attorney will need a clear picture of your financial assets to create a plan that meets your goals.

This is why periodically calculating your net worth is so important. While it may seem like a complex task, it’s actually quite straightforward. Here’s how to do it:

Financial Wealth

Step 1: Add Up Your Assets

Start by listing your most valuable assets, such as your home, vacation or rental properties, and any businesses you own. Then, move on to significant tangible assets like cars, boats, equipment, and other valuable items. Next, include the value of intangible assets like bank accounts, stocks, bonds, and certificates of deposit (CDs). Don’t forget to add in the value of your retirement accounts, such as IRAs and 401(k)s, though note that these may not be considered for financing purposes.

If you’re calculating net worth for financing purposes, include the cash or surrender value of any life insurance policies you own. For estate tax planning, add the death benefit value of life insurance policies that you own. Lastly, don’t overlook significant valuables like antiques, artwork, jewelry, or other collectibles.

Step 2: Calculate Your Liabilities

Now, tally up your total liabilities. These might include mortgages, car loans, loans against life insurance policies, and any other debts you owe. This gives you a complete picture of your financial obligations.

Step 3: Subtract Liabilities from Assets

Finally, subtract your total liabilities from your total assets. The resulting figure is your net worth. It’s as simple as that!

Periodic Review is Key

It’s important to revisit your net worth calculation periodically to track your financial progress. Knowing where you stand helps you plan for future goals, such as affording a dream vacation, purchasing a new car, or determining if you need additional insurance coverage.

If your net worth exceeds $13.61 million ($27.22 million for married couples,) you may be subject to estate taxes upon your death. A qualified estate planning attorney can help you navigate this and minimize potential taxes, ensuring your family is financially secure even after you’re gone.

Take the time to calculate your net worth—it’s an essential step in managing your financial health and planning for the future.

From the desk of Attorney Brandon McGee

Brandon McGee
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