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Do You Know What You’re Worth? Here’s Why It Matters

Tracking your net worth over time can help you reach your financial goals.


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Tracking your net worth

Photo: Unsplash

 

Determining your net worth is a fairly straightforward calculation. While it’s simple enough to accomplish, it’s a good practice to do so regularly since it’s an important measurement of your overall financial health, providing a tree-top view of your finances.

 

We monitor our physical well-being and tend to it with exercise and healthy eating. We also care for our emotional and mental health by taking vacations or managing stress with things like yoga or mindfulness practices. Yet we don’t monitor our financial health as regularly and prudently as we might.

 

Here, we want to provide you with some tools and info to help you monitor your overall financial health and see if you’re on track to reaching your life’s goals.

 

To start, we’ll show you how to measure your net worth, which is a figure that’s meant to grow and multiply as you age, so that you’re well positioned to retire on track and on time.

 

Until your retirement age, keeping an eye on your net worth can also help you manage your annual income and monthly budget, so you’re hitting the financials targets that are most important to you.

 

Whether you want to save for your child’s college education, pay off your mortgage, retire early or buy a new home, regularly monitoring your net worth is a helpful way to see the big picture and guide you to your destination, no matter where you wish to go!

 

How to Calculate Your Net Worth

Calculating your net worth is a pretty simple formula, so break out a piece of paper, pen and your calculator and let’s get to work. Simply add up the value of all of your assets, savings and investments in one column, then add up all of your liabilities in another. To determine your net worth, subtract your liabilities from your assets to come up with either a positive or negative net worth.

 


Net Worth =
(Assets + Savings + Investments) – Liabilities


 

What You Should Include

While it seems easy enough to add up your assets and subtract your liabilities to come up with a (hopefully positive) net worth figure, it’s sometimes hard to know what to put into each column. We break it down for you with some of the most common assets and liabilities, below.

 

Assets, Savings & Investments

Liabilities

Cash on hand

Mortgage on your primary residence and rental properties

Cash value of your checking account

Vacation home mortgage

Cash value of your savings account

Home equity loan

Current market value of your home and/or rental property

Outstanding student loans

Current market value of vacation home

Auto loans

Market value of any businesses

Credit card debt

Home furnishings

Personal loans

Art, antiques and collectibles

Federal or state taxes owed

Jewelry

Medical debt

Current market value of your car or other vehicles

Liens or judgments against you

Current market value of your retirement savings in all retirement accounts including 401ks and IRAs

 

Current market value of investment accounts including individual stocks, bonds, mutual funds, annuities, cash value of life insurance, money market accounts and employee pension

 

 

How Does Your Net Worth Compare

Every three years, the Federal Reserve releases a new Survey of Consumer Finances that studies, among other matters, the income and net worth of individuals and households across the nation.

 

While many variables impact your net worth, including what state you live in, your level of education, and more, here are the survey’s finding on median and average net worth for 2016, which was the last year the survey was completed.

 

Remember that median means the midway point, so half of Americans were worth more and the other half were worth less than the figures cited. Median net worth may be a better indicator than the average net worth of households across America, which was $97,300 in that year.

 

This number can be skewed by the inclusion of very high-net-worth individuals, whose considerable net worth raises the average.

 

There are plenty of ways to slice and dice the data, but here’s how net worth breaks down by age across the country.

 

Median and average net worth by age

 

Median Net Worth

Average Net Worth

Under 35

$11,100

$76,200

Age 35 to 44

$59,800

$288,700

Age 45 to 54

$124,200

$727,500

Age 55 to 64

$187,300

$1,167,400

Age 65 to 74

$224,100

$1,066,000

Age 75 and over

$264,800

$1,067,000

*According to the 2016 Survey of Consumer Finances completed by the Federal Reserve.

 

Tracking Net Worth by Your Age

Early in life, when starting a career, we generally make less money and often have student loans to pay off. But the magic formula for building net worth over your lifetime is saving + time. Compound interest is an amazing tool, and even though you might feel you don’t have much extra cash in your 20s, now is the time to start a retirement savings account that can build for decades to come.

 

A good rule of thumb to follow is that at 30, your net worth should be about half your annual salary, and at 40, it should be twice your annual salary. Note that the Federal Reserve believes that between the ages of 35 and 44, the median net worth for Americans is $59,800, while the average is $288,700.

 

Throughout your thirties, as your career takes off, you should be taking advantage of your company’s retirement plan, such as a 401(k), especially if your employer has a matching program where they match what you invest up to a maximum. If you’re not participating in this, then you’re leaving money on the table. If your company doesn’t offer a retirement savings plan, you can still invest in one on your own.

 

At 40, investing in real estate if you haven’t yet done so is a great way to help build equity for your retirement. It’s also essential to continue to focus on building on your retirement savings.

 

By age 50, as you hopefully near your retirement, you’ve socked away some equity and can safely start to think about your golden years. You should have about four times your annual salary in retirement savings, equity and investments. Your fifties are an excellent time to start maxing out (if you haven’t already) on your 401(k) contributions.

 

When you turn 50, the amount you can contribute to your 401(k) goes up. In 2019, for tax purposes, those aged fifty and older can contribute as much $25,000 per year. The amount you contribute can be deducted from your taxable income for the year, as per IRS guidelines.

 

As you hit your 60s, it’s ideal to have a net worth that’s approximately six times your annual salary, with the idea that soon, you can retire and start living off the interest of your cash, investments, and retirement savings, which you’re eligible to begin taking out as income at age 65. 

 

According to the Federal Reserve’s Survey of Consumer Finances, the average net worth for Americans between the ages of 55 and 64 is $1,167,400, while the median is $187,300. By the time you retire, you’re likely to need about 80% of salary at retirement age for every year you have remaining.

 

Here’s hoping we all have many of them to enjoy in our twilight years! With that in mind, it’s crucial that you start building your net worth early on.

 

How to Increase Your Net Worth at Any Age

We recently spoke to financial advisor Jodie Duvall, a wealth advisor and certified financial planner at First Hawaiian Bank about setting financial goals. She provided some great insights about pinpointing your highest values and goals, as well as some useful tips for monitoring our spending habits to ensure we’re spending and saving with those values in mind.

 

She also told us that middle age is a good time to invest in an IRA. “Many of us have retirement accounts from a company that we do not work for anymore.  By consolidating these accounts into an IRA, you can more easily manage your assets to help reach your goals,” said Duvall.

 

We asked David Tanaka, CFP® and vice president and investment officer at First Hawaiian Bank for some helpful financial advice that anyone could follow, regardless of their age.

 

He shared, “A good benchmark for saving for a healthy retirement is to put away 15% of your salary. This amount can be applied to a combination of 401(k), IRA, savings, and investments. The main thing is to start saving as early as possible. Also, try to pay off credit card debt in full every month.”

 

We put together a short list of ways you can increase your net worth over time, building on your early successes to smooth your way into retirement, keep your stress levels lower, and build a healthy nest egg for your family’s future.

 

  • Set goals and make a plan

  • Pay yourself first

  • Live within your means

  • Max out your 401(k) contributions

  • Invest in a home

  • Keep your debt-to-income ratio low

 

 

Live Wellthy

 

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About Live Wellthy

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Beautiful beaches, year-round summer weather and that iconic aloha spirit are just a few reasons why we’re lucky we live Hawai‘i. It’s no secret that Hawai‘i is one of the healthiest, happiest states in the nation—or that it’s also one of the most expensive. When you pay to stay in paradise, the high cost of living can often be a challenge. The key to living well while living Hawai‘i boils down to one thing: taking charge of your finances. And it’s easier than you think.

 

HONOLULU Magazine is proud to partner with First Hawaiian Bank for Live Wellthy, your new money-savvy guide to living smarter, happier, and healthier. Here, we’ll cover the most essential topics—money-saving tips, travel hacks, investing and spending wisely, planning for retirement and more—to help you navigate your finances, plan for the future and make your money work for you.

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