An important step in putting together your comprehensive retirement plan is calculating your net worth with a personal balance sheet.
To see where you’re going, and whether you’re on track to get there, you need to know where you are right now. You need to find out your net worth so you can determine if you’re financially fit.
To “weigh” your wealth, you’ll need a complete list of your assets and liabilities — everything you own and everything you owe. So, grab your laptop and that fat folder full of paperwork and let’s get to work.
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Start with your assets
On the assets side, you’ll need to know:
- How much cash you have (checking, savings and money market accounts; Treasury bills and/or money under the mattress).
- What your investments are worth (CDs and annuities; any and all retirement and brokerage accounts; income properties or land).
- The value of your home (if you were to sell it today).
- The value of your car(s).
- The value of any other large assets (a boat, vacation home or motor home).
- Any other personal property of value (heirlooms you could sell if you needed the money, jewelry, artwork, a coin or stamp collection, etc.).
- Any life insurance policies with cash value.
- Other assets you might have.
Then think about your liabilities
On the liabilities side, you’ll want to list:
- Your remaining home mortgage and vacation home mortgage (if applicable).
- Any other outstanding loans (car loans, boat loans, student loans — yours or your children’s — home equity loans or lines of credit, any personal loans).
- Your credit card balances.
- Any other bills you’re paying over time (a tax bill, for example).
- Other liabilities.
Your personal net worth is the difference between what you own and what you owe.
Don’t feel discouraged if that number isn’t where you want it to be. That’s the point of this exercise — to motivate you to set goals and start working toward them.
And this information is critical to helping your financial professional build a plan that can get you in shape for retirement.
When your adviser talks about “growing your wealth,” what he really wants is to help you increase your net worth. After all, it won’t do you much good to accumulate a lot of money in savings and investments if, at the same time, you’re piling up debt.
Knowledge is power
Are you living to spend or spending to live? Your adviser can point out your trouble spots and provide some strategies for improving them.
If you’re house poor, you can pay more toward the principal, refinance or even downsize. If you have credit card debt, you can look at your bills and try to curb your appetite for expensive clothes or vacations. If you haven’t made investing a priority and you’re 50 or older, you can make some catch-up contributions.
Seeing the numbers on your balance sheet — good or bad — can put you in a position of power. You’ll know exactly where you stand and what you’ll need to do to enjoy a successful retirement.
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