What are you worth?
As an existential question, that may be tough to answer. But as an economic one, you can work it out.And you should, because to do intelligent planning for long-term goals, your exact "net worth" is one of the basic facts you need.
Net worth refers to the total value of everything you own minus the total of all your debts. It is one of the best measures of overall financial status. It provides a snapshot that can help you make a variety of determinations - for example, whether you have enough insurance, whether you have too much debt, whether your investments are well enough diversified.
"All financial planning is essentially futuristic and involves looking at alternatives available to (reach) whatever objectives you might have," said W. Thomas Porter, vice chairman of Rainier Bank in Seattle and co-author of the Touche Ross Guide to Personal Financial Management.
"There are a variety of reasons for calculating net worth," he added, but one of the most important is that it is necessary in "determining the feasibility of achieving one's goals."
Calculating your net worth is a bit tedious but not complicated. It involves sitting down with your rec-ords and jotting down what you own and what you owe.
On the asset side, many of the values are readily available. Checkbooks, bank statements and recent money-market-account statements will give you a quick and accurate total of your cash, whether in checking or savings accounts.
Likewise, brokerage and mutual-fund statements will give you the number of shares of stock you own, and daily newspaper tables will give you current share prices. The tables also list prices of widely held bonds.
Real estate is a little trickier. A conservative way of valuing your property is the tax assessment. In the Washington area, real property is likely to be worth at least what the assessor says, and probably more. And remember, the number you want here is the gross value; the mortgage gets entered on the liability side.
Business interests can be more difficult to value. Shares in closely held corporations or percentage ownerships in other enterprises may require outside experts to value precisely. For the purposes of this exercise, you may be forced to make do with an educated guess.
Art, antiques and the like may also require expert valuation, something you ought to have done for major pieces so that you can insure them properly. But unless you are a collector, these sorts of assets probably won't be a major part of your wealth. And if you are a collector, you may well be able to value them yourself.
If you own life insurance or an annuity, the company probably will have sent you a statement or included with its premium notice the current cash value of your policy. If you didn't get such a statement or can't find it, your insurance agent should be able to help you out.
Employer-sponsored retirement plans send out statements periodically, or your company's benefits office can give you the value of your retirement holdings.
Your main non-real-estate personal asset is likely to be your car or cars. There are guides to used-car prices, but unless you have an unusual car you can do a quick-and-dirty estimate by checking prices in the classified ads.
Personal property, other than special items such as jewelry, is worth surprisingly little. Furniture, other than antiques, depreciates dramatically the minute it leaves the showroom, and other items such as curtains or carpeting that are custom fitted to your house may have no value at all. Perhaps the most meaningful way to value these items is to try to figure what they would bring at a yard sale.
Now try to think of any other things of value that you own and add them to the list. When you think you have everything, total it all up and you have the value of your assets.
Once you have this, you can go back and calculate the percentage of the total represented by each type of asset.
Porter notes that it is the "investment assets" - cash, stocks, bonds, investment property - that represent money available to achieve future goals. If you have children who someday will want to go to college, if you want to retire in comfort, this is the category you want to build up.
Now the bad news - liabilities.
A mortgage is usually the largest debt. It is also the easiest to value, since lenders send annual loan
analyses that let you know how much interest you have paid and what the remaining loan balance is.
The same is true of other mortgages, whether for a vacation home or investment property.
One thing to watch is the loan balance on your home equity loan, if you have one. Some of these loans do not amortize - that is, you pay only interest, not principal, so the balance not only doesn't go down, it rises as you draw on your borrowing power. If your records show this balance going ever upward over time, it's an indication that you are digging yourself a hole.
Auto lenders provide similar statements. An interesting exercise is to compare your car's value to the loan balance. With today's long-term loans, many motorists are "upside down" - meaning they owe more than the car is worth for several years after buying it.
Banks, brokers and other institutional lenders send periodic statements, or can tell you what the balance is if you ask.
Consumer debt is an easy one. Credit cards, charge accounts and the like send you a bill each month that shows your balance, and it's simply a matter of adding them up.
This, too, is a useful exercise, because if the total is shocking enough you know it's time to cut back. Remember, too, that this is usually high-interest debt whose tax deductibility is being phased out over the next several years.
In fact, you may wish to add a column to the chart listing the interest rates on all your debts. Finally, check taxes. Unpaid installments or estimated tax payments you have to make should be included. Add these to other debts you have, and that is the total of your liabilities. Subtract liabilities from assets, and the result is your net worth.