Know Your True Net Worth

Finding out how much you're worth is a major step toward building wealth

Series Balanced; 20% of Fidelity VIP Equity Income; 10% of MFS Growth with Income; and 10% of Mainstay VP Value.

She also made some life changes. In September, Suggs took a pay cut to start a new job as an associate buyer with Ashley Stewart, a company that offers a 401(k) plan with a dollar-for-dollar match — something that will improve her retirement savings and her net worth while at the company. She says, she’ll consider selling her apartment in 18 months and use the profits to buy a large home. And she admits now that being more aware of her net worth has helped her to curb spending and reach her financial goals faster.

“I feel good that I started a base for more potential growth,” says Suggs. “I hadn’t been involved with the stock market, nor do I understand it well, but this is the type of information that gives me more options to improve my life.”

So how can you calculate your net worth? Over the past two years, through our Black Wealth Initiative, BLACK ENTERPRISE has stressed the importance of DOFE principle No. 4: to measure my personal wealth by net worth, not income. It’s a principle Suggs has now embraced. To resolve questions about calculating net worth, we asked, Mark Mitchell, a registered advisor with AXA Advisors in San Juan Capistrano, California, to help.

Simply stated, what you own minus what you owe equals your net worth. When you begin to calculate a person’s net worth, Mitchell says you must first determine “how each asset is held.” It is best if each asset is solely held (or owned) by the person calculating the net worth. If the asset is jointly held in any way, “This will make a difference in how net worth shakes out,” says Mitchell. For example, “In a community property state, you are entitled to half the assets of anything acquired after marriage, even if you didn’t help pay for it.” (There are 10 community property states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.)

REAL ESTATE
Over the past year, we’ve received a number of questions about the net worth of individuals who owned property. We, at BE, have not counted the value of a home as a full-fledged asset in the past because, as Mitchell explains, “Personal residence real estate is an illiquid asset. The only way to liquidate that asset is by selling it. Or, you can get a new mortgage, equity line of credit, or refinance an existing mortgage — but that’s the only way you can get cash out of it, other than a sale. The reason is, if you’re trying to show the value of equity in the property, the lender will discount the value of the property because it’s not liquid.”

However, the value of real estate in building wealth is unquestioned, so in our future calculations of net worth we will count the fair market value of the home as an asset against the cost of the mortgage

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