Knowing Your Net Worth—Why is This So Important?
Your net worth is calculated as your assets (all that you own) minus your liabilities (all that you owe)—a snapshot of your financial position. People with substantial net worth, generally with more than 7 figures in liquid assets, are considered high-net-worth (HNW) individuals in Canada. How do you estimate your net worth and why is knowing your net worth important? Read this article to learn more.
How to Estimate Your Net Worth
To estimate your net worth, simply add up all of your assets and then subtract all of your liabilities.
Your assets are anything you own that has monetary value.
This can include your retirement account balances (current value), investment account balances (excluding investments already included as part of your retirement account balances), cash value of insurance policies (some insurance policies, such as whole life and universal life policies, have a cash value), checking and savings accounts (current total balances), real estate (actual market value of your home and any other real estate you may own), autos (excluding leased vehicles), and cash, and any other assets with monetary value.
Your liabilities are anything you owe or obligations that deplete your resources.
This can include your personal loan balances, mortgage and auto loan balances, credit card balances, and student loan balances, among other forms of debt balances, all calculated as the current principle balances outstanding.
Why is Knowing Your Net Worth Important?
If your assets exceed your liabilities, you have a positive net worth, and conversely, if your liabilities exceed your assets, you have a negative net worth.
Knowing your net worth is important because, ideally, you would like your net worth to grow as you age—bearing in mind that at some point you may need to tap into your assets (savings and investments) for retirement income.
Perhaps equally important is knowing the overall trend of your net worth, which can be tracked on a quarterly or annual basis, after a large purchase or sale of an asset, or at any other time—whenever you would like to check in on your wealth building progress.
Focus on Building Assets, Perhaps Even More than Growing Income
Did you notice that your net income was not included in your net worth calculation?
You can potentially be a high earning individual, but have a low net worth if you spend most of your money. On the other hand, individuals with modest incomes can be wealthy and become high-net-worth by saving prudently and investing in assets that preserve and grow wealth.
As Robert Kiyosaki, author of Rich Dad Poor Dad, says “While there isn’t anything wrong with working for a paycheck, it probably isn’t the best road to creating the wealth and peace of mind that so many […] sorely need. Investing in assets, even in small ways, can build wealth and deliver a lifetime of income even if and when you stop working.”
There is no hard rule as to what the “right” net worth is at each stage in your life, but calculating your net worth will help you see where you are in the process of achieving a comfortable financial future based on your unique individual expectations and lifestyle desires.
Protect, Preserve and Build Your Net Worth With Bloom
Today, everyone has the opportunity to attempt to increase their net worth through an online investment platform. Alternatively, a professional investment manager can help you protect, preserve and build your net worth without risking your retirement, legacy, philanthropic and intergenerational wealth goals.
Bloom Investment Counsel, Inc. has been managing customized investment portfolios for high-net-worth individuals, family offices, foundations, corporations, institutions and trusts since 1985. Our specialized income solution provides our clients the option, should they need the cash, to withdraw from the income streams generated in their investment portfolios without tapping into their initial investment (capital). If the cash is not needed, the income is reinvested and continues to grow. Visit Bloom’s website to learn more about our investment approach or get in touch with Bloom to find out what we can do to help you preserve and build your net worth.
With Bloom as your trusted professional investment manager, your financial picture is private, personal and unique—and so is your investment portfolio.
Bloom Investment Counsel, Inc. is a well-established Toronto-based independent, privately-owned boutique investment management firm providing customized, actively managed, Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions and trusts.
Founded in 1985, Bloom has experience in managing in excess of $2.5B in assets over the years. We believe that generating independent cash flow is central to the success of our clients’ portfolios because it provides capital for the present day, if needed, while continuing to preserve and build wealth for the future.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.