A key part of financial planning is understanding your net worth. The common mental measuring stick is our contribution to society and the material objects that we have accumulated. By that calculation, there are a lot of millionaires and paupers amongst us. The tendency is for people to either grossly over-value or under -value their wealth.
Your net worth should not be confused with feelings of self-worth or the gadgets you have. Net worth is strictly numeric and is, in theory, divorced from ego, emotion and fantasy and therefore objective.
Simply put, your net worth is the total sum of your assets minus your liabilities. Assets that figure into the equation are all the things you own that could be sold off and converted into cash. So that includes stocks, bonds, property etc. Personal property, including cars, jewellery also count as assets but for the purposes of calculating net worth are best left out of the equation. That’s because the real monetary value of the things that we own is rarely in line with expectation of what we think they are worth. Unless you own a collection of Bentley’s or an extensive art collection, it is probably best to exclude personal belongings from your asset sheet.
People with a substantial net worth are known as high net worth individuals. Typically these will often be experienced investors and are in fact considered as “accredited investors” by the Securities and Exchange Commission, for the purpose of investing in unregistered securities offerings. A HNWI as they are known better will typically have a net worth (excluding their primary residence) of at least $1 million – either alone or together with their spouse.
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