How much are you really worth?
Microsoft founder Bill Gates is worth about $48 billion,
according to Forbes magazine. Donald Trump, about $2.6 billion.
Oprah slides in at $1.3 billion. And Martha Stewart is no longer
in the billionaires club, but she still has a hefty $335 million
or so. What do these people have that you don't? Besides a lot more
spending money, that is? They know their net worth.
If you're like most people, you've never figured out
your net worth. Maybe you've eyeballed your assets; added up the
house, the 401(k), the brokerage account and the cars, and then
subtracted the mortgage, the car loan and a few other things and
come up with a roundabout figure, but you need to do better than
David Marotta, of Marotta Asset Management in Charlottesville,
Va., says computing a net worth statement is one of the first things
he has prospective clients do.
"Even if they don't sign up for our services,
it's a valuable thing to do. Sometimes people find all their net
worth is in the house or the retirement account. This gives them
a feel for their liquidity and then they understand why they can't
do some of the things they want to do."
While equity in a home is definitely part of a person's
net worth, Marotta doesn't like to include home equity in determining
how much a retiree can spend. Some people might opt to do a reverse
mortgage in retirement and draw out those assets, but Marotta says
he's found it's best to reserve the equity for purchasing a retirement
home or even a unit at an assisted living facility or a nursing
Too much net worth in a retirement portfolio means
you have a lot less flexibility to do things pre-retirement. The
assets may be adequate for retirement, but you're strapped for cash
After you crunch the numbers and determine your net
worth, don't expect to break out into a grin when you see your bottom
line. Many people get quite discouraged, notes Marotta.
"Some haven't saved as much as they thought and
they're not making progress to their goals. Others, we need to tell
them what their goals should be and then they realize that their
net worth has to be significantly higher to meet those retirement
Net worth is total assets minus total liabilities.
You might be living in a modest house and driving an economy car
and have a higher net worth than your cousin who lives in a big
house and has two BMWs in the garage. It's the difference between
what you own and what you owe.
Experts advise calculating your net worth at least
once a year. It can be a bit of a hassle the first time pulling
together all the information, but it should be easier in succeeding
years. Certified financial planner John Sestina, president of John
E. Sestina and Company, Columbus, Ohio, says you'll likely find
that there are more benefits than simply knowing your bottom line.
"It's not just the paper that's valuable; it's
the process of putting it together. You might find a certificate
of deposit you'd forgotten about, or an asset that still has your
ex-wife as beneficiary. It's touching on who you are financially
and then making some changes that are beneficial."