Hi there. My name is Bridget McKay. I’m an attorney in Petaluma, California, and I practice in the area of estate planning, wills, trusts, and probates. Today, I want to talk to you a little about calculating your net worth, your financial net worth. But I want to remind us that, “when your self-worth goes up, your net worth goes up with it.” That was a quote by Mark Victor Hansen, who is co-creator of Chicken Soup for the Soul.
I am of the philosophy that most of our wealth is in who we are and how we put ourself out in the world. Knowledge, values and wisdom are often much more valuable to pass on to future generations than financial wealth. But financial wealth is important in many ways. You need it to establish credit, to support your family and, ultimately, to provide for your family when you are not there.
When you do go and get an estate plan done by a qualified estate planning attorney, it is important to know your net worth. So that, that attorney can draft the plan that achieves your goals. It’s a simple three-step task. First, you need to add up the value of your assets. I suggest you start with your most valuable assets. Home, vacation homes or rentals or your business. Then add other assets you have of worth, like a boat, cars, if you own an airplane, add that in. Then look at all your bank accounts, brokerage accounts, stocks, bonds, CDs, add that. And then the value of your retirement plan. So, what do you have in your IRA or your 401K or any kind of annuities that you’re planning to use later? It does have worth now that contributes to your net worth. And then finally, include any cash or surrender values of your life insurance policy. And if you do have valuable personal property, like antiques, jewelry, things like that, the high significant value ones, add that as well. And that will give you the total of your assets.
Now, step two is to add your liabilities together. Include the mortgage on your house, any loans you have on your business, car loans, any money you may owe someone else, whether it’s a family member or a friend and those are all, your credit card debt, all that stuff. Those are your liabilities, anything that you owe.
Then, step three, the final step, is to subtract those liabilities from the assets that you added up, and that equals your net worth, as it exists today.
It’s important to know where you stand and you can only find that out by following those three steps. Because when you know where you stand, you know how you can reach your future goals. And also, if you’re engaging in estate planning, it helps you and your attorney, because your attorney can better advise you on whether you need either a will or a trust and can help you achieve your goals.