Know Your True Net Worth

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

as a liability.

Securities are assets whose value changes everyday. “The fair market value is good only for the day in question,” says Mitchell. When calculating these into your net worth, count only the portion of the portfolio that has not been “margined,” where a brokerage firm allows customers to use securities they own as collateral for a loan to purchase more securities.

Mitchell explains that if you own a business, or do consulting on the side, this can become an asset to you because it’s going to generate revenue, which will produce earned income that can be calculated in your net worth.
For example, substantial assets, such as a building that you own, can be added to net worth. You may also want to have your business appraised to see how much it’s worth.

Cash is simple: Any money market accounts, certificates of deposits, bank bonds, Treasuries, and savings are assets. And, Mitchell says, if you’ve given money to a friend or relative to help start a business and, “If you are expecting to get principal and interest in return, it’s a receivable — an asset to you.” However, if the borrower defaults on the loan, you may be able to deduct a portion of it as a bad debt.

Leased property is typically not considered an asset because the ownership interest rests with the lessor not the lessee. “However, collectible cars, motorcycles, etc., are booked as assets because they have some significant, tangible value in certain instances,” says Mitchell. “My personal cars may be treated as such if I’m making payments on them or if I own them outright.” Personal vehicles could also be counted as a business asset if they help you earn income.

Mitchell believes that to consider anything in this category an asset (including furs, jewelry, art, etc.), it must have a certified appraisal by someone who is credible. “It’s hard to get the net value of these things,” says Mitchell. “A certified appraisal gives you a b
etter stand.”

For employer-sponsored retirement plans, ask: How much of your money and your employer match will you walk away with when you leave?

Only count the vested portion of your retirement plan assets toward your net worth. Also, if your 401(k) is pretaxed, “the liability is the tax because you only take away what’s left over after taxes are finally taken out.”

As far as insurance policies go, Mitchell says you cannot list a life insurance death benefit as an asset, “because you’ll never see the benefit — your beneficiaries will.” However, he says, “In those cases where a person purchased life insurance with the intent of using it as part of their retirement planning strategy, and [it] has a lot of cash value, then I would book the cash portion as an asset, not the death benefit.”

Knowing and boosting your net worth should be your goal. To do that, for Suggs and many others like her, Epps says the answer is simple: “We need to spend less than

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