# High-Net-Worth Individual (HNWI)

REVIEWED BY ADAM HAYES  Updated Apr 29, 2019

### What Is a High-Net-Worth Individual (HNWI)?

High-net-worth individual (HNWI) is a classification used by the financial services industry to denote an individual or a family with liquid assets above a certain figure. Although there is no precise definition of how rich someone must be to fit into this category, high net worth is generally quoted in terms of having liquid assets of a particular number. The exact amount differs by financial institution and region but could range from people with a net wealth of 6- to 7- or more figures.

The VHNWI classification—very high-net-worth individual—can refer to someone with a net worth of at least $5 million. Ultra-high-net-worth individuals (UHNWI) are defined as people with investable assets of at least$30 million, usually excluding personal assets and property such as a primary residence, collectibles, and consumer durables.Volume 0%

### The Basics of High-Net-Worth Individuals

A high-net-worth individual classification generally qualifies for separately managed investment accounts instead of regular mutual funds. This is where the fact that different financial institutions maintain varying standards for HNWI classification comes into play. Most banks require that a customer have a certain amount in liquid assets and/or a certain amount in depository accounts with the bank to qualify for special HNWI treatment.

The most commonly quoted figure for membership in the high-net-worth club is around $1 million in liquid financial assets. An investor with less than$1 million but more than $100,000 is considered to be “affluent” or perhaps “sub-HNWI.” The upper end of HNWI is around$5 million, at which point the client is then referred to as “very HNWI.” More than $30 million in wealth classifies a person as “ultra HNWI.” HNWIs are in high demand by private wealth managers. The more money a person has, the more work it takes to maintain and preserve those assets. These individuals generally demand (and can justify) personalized services in investment management, estate planning, tax planning, and so on. ### KEY TAKEAWAYS • A high-net-worth individual (HNWI) is somebody with around$1 million in liquid financial assets.
• HNWIs are in high demand by private wealth managers. The more money a person has, the more work it takes to maintain and preserve those assets.
• The United States had the most HNWIs in the world, at more than 5.28 million.

### Where Do HNWIs Live?

The Capgemini World Wealth Report reveals that as of 2017, the United States had the most HNWIs in the world, at more than 5.28 million, and seeing 10% growth in its HNWI population from 2016. The entire HWNI population globally grew by 11.2% in 2017.

Moreover, 61.2% of the global HNWI population reside in four countries: the United States, Japan, Germany, and China. The major country with the largest increase in HNWI population for 2017 was India, growing 20% from 2016. South Korea had the second-best growth, with a 17% increase. North America had 31.3% of the HNWI population, and Asia-Pacific had 34.1%. Of the HNWI population in North America, the U.S. made up 96% of the continent’s HNWI population.

Europe saw a 7.3% growth in HNWI population for 2017, with Germany growing by 7.6%. Ireland posted the highest HNWI population growth in Europe, coming in at 15.3%. Meanwhile, the HNWI population for the U.K. was just 1.2%. Sweden was the only market to jump two places in the HNWI population ranking, coming in at 23rd, and posting 14% HNWI population growth.

# Net Worth

REVIEWED BY AKHILESH GANTI  Updated Mar 31, 2019

### What is Net Worth?

Net worth is a quantitative concept that measures the value of an entity and can be applicable to individuals, corporations, sectors and even countries. Simply stated, net worth is the difference between assets and liabilities. Positive net worth means that assets exceed liabilities while negative net worth describes the opposite scenario.Volume 0%02:0902:09

### Understanding Net Worth

Net worth (assets minus liabilities) gauges financial health. An asset is anything that is owned and has monetary value while liabilities are obligations that deplete resources. Assets can be liquid when they are, or can be easily turned into, cash (like a checking account). They are non-liquid when it could take time to turn into cash (like a home). Liabilities are obligations that have to paid off (like a car loan).

Net worth provides a snapshot of an entity’s current financial position. Positive and increasing net worth indicates good financial health, while a decrease would be cause for concern as it might be indicative of a decrease in assets relative to liabilities.

The best way to improve one’s net worth, whether it be an individual or corporation, is to either reduce liabilities while assets either stay constant or rise, or increase assets while liabilities either stay constant or fall.

### KEY TAKEAWAYS

• Net worth is a quantitative concept that measures the value of an entity and can be applicable to individuals, corporations, sectors and even countries.
• Net worth is the difference between assets and liabilities and provides a snapshot of an entity’s current financial position.
• In business, net worth is also known as book value or shareholders’ equity. In fact, the balance sheet is also known as a net worth statement.
• People with a substantial net worth are known as high net worth individuals (HNWI).

### Net Worth in Business

In the business context, net worth is also known as book value or shareholders’ equity. In fact, the balance sheet is also known as a net worth statement. The value of a company’s equity equals the difference between the value of total assets and total liabilities. Note that the values on a company’s balance sheet highlight historical costs or book values, not current market values.

Lending institutions scrutinize a business’ net worth to determine if it is financially healthy. If total liabilities exceed total assets, which is negative net worth, a creditor may not be too confident in a company’s ability to repay its loans.

A company that is consistently profitable will have a rising net worth or book value, as long as these earnings are not fully distributed to shareholders as dividends but are retained in the business. For public companies, rising book values over time may be rewarded by an increase in the value of stocks trading in the markets.

### Net Worth in Personal Finance

An individual’s net worth is simply the value that is left after subtracting liabilities from assets. Examples of liabilities (debt) include mortgages, credit card balances, student loans, car loans, etc. An individual’s assets include checking and savings account balances, value of securities such as stocks or bonds, home value, market value of an automobile, etc. In other words, whatever is left after selling all assets and paying off personal debt is the net worth. Note that the value of personal net worth includes the current market value of assets and the current debt costs.

Consider a couple with the following assets – primary residence valued at $250,000, an investment portfolio with a market value of$100,000, and automobiles and other assets valued at $25,000. Liabilities are primarily an outstanding mortgage balance of$100,000 and a car loan of $10,000. The couple’s net worth would, therefore, be calculated as [$250,000 + $100,000 +$25,000] – [$100,000 +$10,000] = $265,000 Assume that five years later, the couple’s financial position is as follows – residence value$225,000, investment portfolio $120,000, savings$20,000, automobile and other assets $15,000; mortgage loan balance$80,000, car loan $0 (paid off). The net worth five years later would be [$225,000 + $120,000 +$20,000 + $15,000] –$80,000 = $300,000. In other words, the couple’s net worth has gone up by$35,000 despite the decrease in the value of their residence and car. The increase in net worth is due to the fact that the decline in residence value was more than offset by increases in other assets (such as the investment portfolio and savings) as well as the decrease in liabilities.

An individual can have a negative net worth if his debt is more than the value of his assets. For example, if the sum of an individual’s credit card bills, utility bills, outstanding mortgage payments, auto loan bills, and student loans is higher than the total value of his cash and investments, his net worth will be negative. In this case, the individual may file for Chapter 7 bankruptcy protection to eliminate some of the debt and to prevent creditors from trying to collect on the debt. However, some liabilities such as child support, alimony, and taxes, cannot be discharged. In addition, a bankruptcy will stay on an individual’s credit report for many years.

People with a substantial net worth are known as high net worth individuals(HNWI), and form the prime market for wealth managers and investment counselors. Investors with a net worth (excluding their primary residence) of at least 1 million – either alone or together with their spouse – are considered as “accredited investors” by the Securities and Exchange Commission (SEC), for the purpose of investing in unregistered securities offerings. If you want to save some time in calculating your personal net worth, use our free Net Worth Tracker which allows you to calculate, analyze and record your net worth for free.SPONSORED # Tangible Net Worth Definition REVIEWED BY WILL KENTON Updated Jun 10, 2019 ### What Is Tangible Net Worth? Tangible net worth is most commonly a calculation of the net worth of a company that excludes any value derived from intangible assets such as copyrights, patents, and intellectual property. Tangible net worth is a simple calculation of a company’s total tangible assets minus the company’s total liabilities. It can also be calculated for individuals, using the same formula of total tangible assets minus total debt liabilities. ### The Formula for Tangible Net Worth Is \begin{aligned} &\text{TNW} = \text{Total Assets} – \text{Liabilities} – \text{Intangible Assets} \\ &\textbf{where:} \\ &\text{TNW} = \text{Tangible Net Worth} \\ \end{aligned}​TNW=Total Assets−Liabilities−Intangible Assetswhere:TNW=Tangible Net Worth​﻿ ### How to Calculate Tangible Net Worth The calculation of tangible net worth for a company essentially includes all a company’s physical assets. This includes cash and accounts receivables (AR), inventory, equipment, buildings and real estate, and investments. For an individual, the tangible net worth calculation includes such items as home equity, any other real estate holdings, bank and investment accounts, and major personal assets such as an automobile or jewelry. Relatively insignificant personal assets are not ordinarily included in the calculation for an individual. Tangible net worth is a factor often considered by a lender from whom a company or individual is seeking financing. ### KEY TAKEAWAYS • Tangible net worth is most commonly a calculation of the net worth of a company that excludes any value derived from intangible assets such as copyrights, patents, and intellectual property. • Tangible net worth is a simple calculation of a company’s total tangible assets minus the company’s total liabilities. • It can also be calculated for individuals, using the same formula of total tangible assets minus total debt liabilities. One item that can complicate the tangible net worth calculation is subordinated debt, debt that in the event of a default or liquidation is only repaid after all debt obligations to senior debt holders have been satisfied. A simple example of subordinated debt is a secondary mortgage held on real estate. The secondary mortgage is only repaid after the debt represented by the primary mortgage is paid off. If the value of the property on which a company or individual holds subordinated debt is not sufficient to retire that debt in addition to debt owed to senior, primary debt holders, then the subordinated debt should not be included in the calculation of tangible net worth.Volume 0% #### Tangible Net Worth ### What Does Tangible Net Worth Tell You? The tangible net worth calculation is designed to represent the total value of a company’s physical assets net of its outstanding liabilities, as based on figures shown in the company’s balance sheet. In effect, it indicates an approximation of the liquidation value of the company in the event of bankruptcy or sale. The primary positive of the tangible net worth calculation is that it is simpler to do than a total net worth calculation, as it is easier to place an accurate value on physical assets than it is to evaluate intangible assets such as customer goodwill or intellectual property. Intellectual property includes things such as proprietary technology or designs. ### Limitations of Tangible Net Worth The primary drawback of looking at tangible net worth is that it may fall substantially short as a representation of actual net worth in cases where a company or an individual has intangible assets of considerable value. For example, a major computer software firm such as Microsoft Corporation (NASDAQ: MSFT) may possess a wealth of intellectual property rights and other intangible assets that are worth billions of dollars, but which would be excluded from the tangible net worth calculation. # Net Tangible Assets REVIEWED BY WILL KENTON Updated Jul 6, 2018 ### What are Net Tangible Assets Net tangible assets is an accounting term calculated as the total assets of a company, minus any intangible assets such as goodwill, patents and trademarks, less all liabilities and the par value of preferred stock. In other words, its focus is on physical assets such as plant, property and equipment, as well as inventories and cash instruments. Net tangible assets is also known as “net asset value” or “book value.” To calculate a company’s net asset value on a per bond or per share of preferred stock or common stock, divide the net tangible assets figure by the number of bonds or shares of preferred stock or shares of common stock.Volume 0% #### Net Tangible Assets ### BREAKING DOWN Net Tangible Assets Net tangible assets are meant to represent a company’s total amount of physical assets minus any liabilities within the company. The calculation of net tangible assets takes the fair market value of a company’s tangible assets and subtracts the fair market value of its liabilities. Tangible assets can include items such as cash; inventory; accounts receivableproperty, plant and equipment (PPE); and other assets. Liabilities include accounts payable, long-term debt and other similar obligations. For example, if a company has total assets of1 million, total liabilities of $100,000 and intangible goodwill of$100,000, its net tangible asset amount is $800,000. This is derived by subtracting$100,000 in both liabilities and goodwill from the total asset number of $1 million. ### Importance of Net Tangible Assets This measurement of a company’s tangible assets is important because it allows a firm’s management team to analyze its asset position without including obsolete or difficult to value intangible assets. A company’s return on assets (ROA), for example, is often more accurate when net tangible assets are used in the calculation. The usefulness of deriving net tangible assets, however, varies across industries. Medical device manufacturers, for example, have high levels of valuable intangible assets. It is therefore important to look at a company’s price-to-book (P/B) value and compare it against similar companies to gauge performance. ### Net Tangible Assets Per Share Net tangible assets per share is sometimes used in lieu of the net tangible assets measurement. Net tangible assets per share is calculated by taking a company’s net tangible asset number and dividing it by the total number of shares outstanding. If a company has net tangible assets of$1 million and 500,000 shares outstanding, its net tangible assets per share is $2. Net tangible assets per share is useful when conducting comparative analysis of companies within an industry. Auto manufacturers, for example, may have high net tangible assets per share, while a software company with a high level of intangible assets may have a much lower number per share. It is therefore important to use this measure only when analyzing companies within the same industry. # How to Calculate Your Tangible Net Worth BY JEAN FOLGER Updated Oct 3, 2018 You can calculate your net worth by subtracting your liabilities from your assets. If your assets exceed your liabilities, you will have a positive net worth. Conversely, if your liabilities are greater than your assets, your net worth will be negative. You might calculate your net worth to quantify how you are doing financially, or to evaluate your financial progress over time. For certain applications, however, this basic net worth calculation may not be adequate. If you hold copyrights, patents or other intellectual property (IP), you may need to calculate your “tangible” net worth, which is the sum of all your tangible assets minus the total amount of your liabilities. Businesses, for example, calculate tangible net worth to determine the liquidation value of the company if it were to cease operations and be sold. This figure can also be important to individuals who are applying for personal or small business loans, and where the lender demands a “real” net worth figure. ### What Is Tangible Net Worth? Your tangible net worth is similar to net worth in that it takes into consideration assets and liabilities, but your tangible net worth goes one step farther. It subtracts the value of any intangible assets, including goodwill, copyrights, patents and other intellectual property. The basic formula for calculating tangible net worth is: Tangible Net Worth = Total Assets – Total Liabilities – Intangible Assets Your lender may be interested in your tangible net worth because it provides a more accurate view of your real net worth, which is what the bank could expect to make if it had to liquidate your assets if you defaulted on their loan. ### Tangible Versus Intangible Assets The difference between net worth and tangible net worth calculations is that the former includes all assets, and the latter subtracts the assets that you cannot physically touch. Assets are everything that you own that can be converted into cash. By this definition, assets include cash, real property (land and permanent structures, such as homes, attached to the property), and personal property(everything else that you own such as cars, boats, furniture, and jewelry). These are your tangible assets since they are all things that you can hold. Intangible assets, on the other hand, are assets you cannot hold. Goodwill, copyrights, patents, trademarks and intellectual property are all considered intangible assets since they cannot be seen or touched even though they are valuable. If you are selling your small business, you may be able to rightly argue that these intangible assets add value to the business. However, in the case of determining tangible net worth as part of the loan process, the bank may only consider those assets that are tangible because they could be more easily liquidated. ### Valuation of Intangible Assets Placing a value on intangible assets is tricky. The rise and subsequent fall of many dot-com companies in the late 1990s and early 2000s illustrates what can happen to companies that rely heavily on intangible assets. Ask Jeeves Inc.’s common stock, for example, sold around$180 per share in late 1999 and its market valuewas almost 200 times stockholders’ equity at that price. While the company’s balance sheet showed assets of $32 million (mostly cash, cash equivalents, and investments), the indicated market value was nearly$4 billion. This discrepancy between the balance sheet and indicated market value represented how investors valued Ask Jeeves’ intangible assets. However, 18 months later, Ask Jeeves shares sold for only about $1, with an indicated market value of a greatly-reduced$50 million, demonstrating that Ask Jeeves’ intangible assets had been incorrectly valued.

Today’s intangible asset valuation is a multi-step process. The valuation process may begin with the following considerations:

• Purpose: Why is the asset being valued? (for example, financial reporting, bankruptcy/reorganization, litigation or transaction strategy)
• Description: What is the asset?
• Premise: How will the asset be used now and in the future?
• Standard: Who will buy the asset?

The answers to these questions help determine the best methodology for valuation. For example, the transactional method looks at the price paid for similar intangible assets under similar conditions. Other methods include the income method, which analyzes projected cash flow, the economic life of the intangible assets and the discount rate. The replacement cost method estimates the cost of developing a similar intangible asset in the future. At times, multiple valuation methods may be used simultaneously to provide confirmation that the valuation is accurate.

Many individuals and businesses will consult with qualified professionals who specialize in intangible asset valuation to accurately determine the value of their trademarks, patents, copyrights, customer lists, and other intellectual property. The intangible asset valuation methods used by such professionals are appropriate for financial reporting requirements under U.S. generally accepted accounting principles (GAAP).

### Calculating Your Tangible Net Worth

The formula for calculating your tangible net worth is fairly straightforward:

Tangible Net Worth = Total Assets – Total Liabilities – Intangible Assets

Your liabilities are relatively easy to quantify since they represent all of your outstanding debts, and you likely receive monthly statements or reminders for them. These statements are based on actual numbers – not estimates – and show exactly what you owe. The challenge is to correctly determine the value of your assets. To calculate your tangible net worth, you must first determine your total assets, total liabilities and the value of any intangible assets:

 Total Assets Total Liabilities Value of Intangible Assets Cash and cash equivalentsInvestmentsReal propertyPersonal property Secured liabilities – auto, mortgage, home equity loans, etc.Unsecured liabilities – credit cards, medical, student and personal loans, taxes, etc. GoodwillPatentsTrademarksIntellectual propertyOther IP

Once you have determined the value of these intangible assets, you can use the formula to determine your tangible net worth. A sample worksheet is shown below.

 Assets Current Value Liabilities Amount Cash and Cash Equivalents Secured Liabilities Certificates of deposit Auto loans Checking account Home equity line Money market account Margin loans Physical cash Mortgage Savings account Rental mortgage Treasury bills 2nd home mortgage Investments Unsecured Liabilities Annuities Credit card debt Bonds Medical bills Life insurance cash value Personal loans Mutual funds Student loans Pensions Taxes due Retirement plans Other debt and bills Stocks Total Liabilities Real Property Primary home Second home Intangible Assets Rental properties Copyrights Boats Goodwill Intellectual Property Personal Property Patents Collectibles Trademarks Household furnishings Jewelry Total Intangible Assets Vehicles Total Assets Total Assets – Total Liabilities – Total Intangible Assets Tangible Net Worth

### The Bottom Line

Your tangible net worth is equal to the value of all of your assets, minus any liabilities and intangible assets including copyrights, goodwill, intellectual property, patents, and trademarks. While a standard net worth calculation (assets – liabilities) will suffice for most individuals, those who hold intangible assets may be required to calculate their tangible net worth to satisfy a lender’s requirements for a personal or small business loan. As with any net worth calculation, placing accurate values on assets is critical. Many individuals and businesses prefer to solicit the advice of qualified professionals when valuing intangible assets. If you want to save some time, use Investopedia’s free Net Worth Tracker to calculate, analyze and record your net worth.

# Why Knowing Your Net Worth Is Important

BY JEAN FOLGER  Updated May 7, 2019

Your net worth is the amount by which your assets exceed your liabilities. In simple terms, net worth is the difference between what you own and what you owe. If your assets exceed your liabilities, you have a positive net worth. Conversely, if your liabilities are greater than your assets, you have a negative net worth.

Your net worth provides a snapshot of your financial situation at this point in time. If you calculate your net worth today, you will see the end result of everything you’ve earned and everything you’ve spent up until right now. While this figure is helpful – for example, it can provide a wake-up call if you are completely off track, or a “job-well-done” confirmation if you are doing well – tracking your net worth over time offers a more meaningful view of your finances.

When calculated periodically, your net worth can be viewed as a financial report card that allows you to evaluate your current financial health and can help you figure out what you need to do in order to reach your financial goals.

### Net Worth = Assets – Liabilities

Your assets are anything of value that you own that can be converted into cash. Examples include investments, bank and brokerage accounts, retirement funds, real estate and personal property (vehicles, jewelry and collectibles) – and, of course, cash itself. Intangibles such as your personal network are sometimes considered assets as well.Your liabilities, on the other hand, represent your debts, such as loans, mortgages, credit card debt, medical bills and student loans. The difference between the total value of your assets and liabilities is your net worth.

One of the challenges in calculating your net worth is assigning accurate values to all of your assets. It’s important to make conservative estimates when placing value on certain assets in order to avoid inflating your net worth (i.e. having an unrealistic view of your wealth). Your home, for example, is probably your most valuable asset and can have a significant impact on your financial situation. Determining an accurate value of your home – by comparing it to similar homes in your area that have recently been sold or by consulting with a qualified real estate professional – can help you calculate a realistic net worth.

Notably, however, there is some debate about whether personal residences should be considered assets for the purpose of calculating net worth. Some financial experts believe that the equity in your home and the market value of your home should be considered assets, because these values can be converted to cash in the event of a sale.

That said, other experts feel that even if the homeowner did receive cash from the sale of the home, that cash would have to go toward the purchase or rental of another home. This essentially means that the cash received becomes a new liability — the cost of replacement housing. Of corse, if the home being sold has more value than the replacement residence, part of the former home’s value can be considered an asset.

### What Does It Mean?

Your net worth can tell you many things. If the figure is negative, it means you owe more than you own. If the number is positive, you own more than you owe. For example, if your assets equal $200,000 and your liabilities are$100,000, you will have a positive net worth of $100,000 ($200,000 – $100,000 =$100,000). Conversely, if your assets equal $100,000 and your liabilities are$200,000, you will have a negative net worth of minus $100,000 ($100,000 – $200,000 = -$100,000). A negative net worth does not necessarily indicate that you are financially irresponsible; it just means that – right now – you have more liabilities than assets.

Like the stock market, your net worth will fluctuate. However, also like the stock market, it is the overall trend that is important. Ideally, your net worth continues to grow as you age – as you pay down debt, build equity in your home, acquire more assets, and so forth. At some point, it is normal for your net worth to fall, as you begin to tap into your savings and investments for retirement income.

Since each person’s financial situation and goals are unique, it is difficult to establish a generic “ideal” net worth that applies to everyone. Instead, you will have to determine your ideal net worth – where you want to be in the near-term and long-term future. If you have no idea where to start, some people find the following formula helpful in determining a “target” net worth:

\text{Target Net Worth} = \left[\text{Your Age} – 25\right]* \left[\frac{1}{5}*\text{Gross Annual Income}\right]Target Net Worth=[Your Age−25]∗[51​∗Gross Annual Income]﻿

For example, a 50-year-old with a gross annual income of $75,000 might aim for a net worth of$375,000 ([50 – 25 = 25] x [$75,000 ÷ 5 =$15,000]). This does not mean that all 50-year-olds should have this same net worth. The formula can be used simply as a starting point. Your ideal net worth may be much more or much less than the amount indicated by the guideline, depending on your lifestyle and goals.

### Why Your Net Worth Is Important

When you see financial trends in black and white on your net worth statements, you are forced to confront the realities of where you stand financially. Reviewing your net worth statements over time can help you determine 1) where you are, and 2) how to get where you want to be. This can give you encouragement when you are heading in the right direction (i.e. reducing debt while increasing assets) and provide a wake-up call if you are not on track. Getting on track requires you some fo the following below:

Knowing your net worth is important because it can help you identify areas where you spend too much money. Just because you can afford something doesn’t mean you have to buy it. To keep debt from accumulating unnecessarily, consider if something is a need or a want before you make a purchase. To reduce unnecessary spending and debt, your needs should represent the majority of spending. (Keep in mind that you can falsely rationalize a want as a need. That $500 pair of shoes does fulfill a need for footwear, but a less expensive pair may do just fine and keep you headed in the right financial direction). ### Pay Down Debt Reviewing your assets and liabilities can help you develop a plan for paying down debt. For instance, you might be earning 1% interest in a money market accountwhile paying off credit card debt at 12% interest. You may find that using the cash to pay off the credit card debt makes sense in the long run. When in doubt, crunch the numbers to see if it makes financial sense to pay down a certain debt, taking into consideration the impact of no longer having access to that cash (which you might need for emergencies). ### Save and invest Your net worth figures can motivate you to save and invest money. If your net worth statement shows that you are on track to meet your financial goals, it can encourage you to continue what you’re doing. Conversely, if your net worth indicates room for improvement (for example, over time you have dwindling assets and burgeoning liabilities), it can provide a needed spark of motivation to take a more aggressive approach to saving and investing your money. ### The Bottom Line Regardless of your financial situation, knowing your net worth can help you evaluate your current financial health and plan for your financial future. By knowing where you stand financially, you will be more mindful of your financial activities, better prepared to make sound financial decisions and more likely to achieve your short-term and long-term financial goals. If you want to save some time in tracking your net worth, use our free Net Worth Tracker, which allows you to calculate, analyze and record your net worth for free. # Assets That Increase Your Net Worth BY JEAN FOLGER Updated Oct 4, 2018 Your net worth calculation provides a financial report card for how you are doing at this point in time. Net worth is calculated by subtracting all of your liabilities (what you owe) from your total assets (what you own). If your assets exceed your liabilities you have a positive net worth. If your liabilities are greater than your assets, then you have a negative net worth. Keep in mind, your net worth fluctuates over your entire adult life, responding to changes in income and spending habits. While it is helpful to calculate your net worth in order to figure out how you are doing financially today, your net worth is most beneficial when it is calculated and evaluated periodically over time. By noting changes in your net worth, you can see trends in your financial situation, be proactive about making better financial decisions and figure out what you need to do to reach your short-term and long-term financial goals. You can improve your net worth by increasing your assets, reducing your liabilities or a combination of the two. ### A Quick Review Net worth is the difference between your assets and liabilities, calculated as: Net Worth = Total Assets – Total Liabilities While your liabilities are easy to quantify (you probably receive a reminder each month that states the exact amount of money you owe to each creditor) it can be challenging to determine accurate values for some of your assets. It is best to make conservative estimates to avoid over-inflating your net worth (which may give you a false sense of financial security). Your house is likely your most valuable asset and the value that you assign to it can have a great impact on your net worth calculation. A qualified real estateprofessional can give you an estimate of your home’s value, or you can do your own research using online real estate aggregators such as www.trulia.com or www.zillow.com. Here, you can look up real estate trends in your area and determine the sales prices for recently sold, similar properties in your area. To be realistic, subtract the going commission (such as 4% or 6%) to cover the future cost of selling the home. When in doubt, be honest and conservative in estimating the market value of any of your assets – including your home, vehicles, collectibles, furnishings and jewelry. Be realistic about the condition of your assets, and try to base these figures on what you could sell each asset for now, rather than: • How much you paid for it • How much you wish it were worth While any asset can boost your net worth, several “large” assets are likely to have a greater positive effect on your bottom line. These include your: ### Primary Residence As mentioned previously, your house is probably your most valuable asset (it may simultaneously be your biggest liability). The more equity you have in your home, the more it will increase your net worth. Keep in mind that when you determine your net worth, you must subtract your liabilities – including your mortgage. If your home is valued at$300,000 and you owe $200,000 on your mortgage, your home will effectively add$100,000 to your net worth ($300,000 –$200,000 = $100,000 equity). If you owe only$50,000 on that same home, however, the house will add $250,000 to your net worth ($300,000 – \$50,000).

There is a bit of controversy surrounding the usefulness and appropriateness of including your home in your net worth calculation. Proponents believe that your home is your most valuable asset and should definitely be included in your net worth calculation. Opponents argue that you should not count it because if you sold it (for example, during retirement) where would you live?

To appease both schools of thought, many individuals choose to create two net worth statements: one that includes the house (as both an asset and a liability if there is a mortgage), and one that leaves it out as an asset (while still including it on the liability side of the equation if there is a mortgage).

### Vacation Homes and Rental Properties

Vacation homes and rental properties may have a positive effect on your net worth. In many cases, these other-than-primary-residences are paid for outright with cash. For example, many people purchase condominium units as vacation homes. Condos are often paid for in cash because, firstly, they tend to be cheaper than single-family homes in the area, and secondly, the mortgage requirements are a lot more complicated and strict than for a single-family home.

If you paid cash for your vacation home or rental property, your net worth will increase by the same amount by which the home is valued, less any expected capital gains taxes (if you were to sell the home), if applicable, and any related expenses such as property taxes and insurance. And because you will still have a place to live if you sell your vacation home or rental property, you can safely count it as an asset without worrying about the don’t-count-your-home-as-an-asset school of thought.

### Investments

Investments can be another major contributor to overall net worth. Although there are several different types of investments, some of the most common include stocks, bonds, mutual funds, ETFs and any other securities. The value of your investments in any tax-deferred retirement plans, such as 401(k)s, 403(b)s and IRAs (individual retirement accounts) can significantly increase your net worth. Most investments will fluctuate over time, so it is important to reflect these changes in your periodic net worth calculations. Note: taxes on these assets are contingent liabilities that should be included in the liability side of your net worth statement in order to provide a more realistic view of your financial situation.

### Art and Other Collectibles

Art and other collectibles can add considerably to your net worth. The value of these assets, however, is often fickle and changes depending on current trends and the demand for such items. Because market values do change over time, and because we are often not aware of the value of certain collectibles – consider the many people who strike it rich on PBS’s “Antiques Roadshow,” bringing in garage sale finds to discover they are worth tens or hundreds of thousands of dollars – it may pay to seek out professional appraisals. In addition to having a good estimate for your net worth statement, you can also make sure the item is adequately insured against losses (your homeowner’s insurance policy may not cover art and other collectibles without a specific rider).

### The Bottom Line

Your net worth statement is a highly personalized financial report card. It provides a picture of where you stand – financially speaking – at this point in time, and can help you make progress towards reaching your short-term and long-term financial goals.

Certain assets, such as homes, investments and art, may have the greatest impact on your overall net worth. When valuing any asset, it is important to determine fair market values – how much money you could make if you sold the item today – whether it’s a stock, your house or a piece of jewelry. Accurate values can provide you with a realistic net worth, which can help you make better financial decisions.

# What is an Asset?

BY JEAN FOLGER  Updated Mar 28, 2019

An asset is anything of value or a resource of value that can be converted into cash. Individuals, companies, and governments own assets. For a company, an asset might generate revenue, or a company might benefit in some way from owning or using the asset.

### Personal Assets

Examples of personal assets include:

Your net worth is calculated by subtracting your liabilities from your assets. Essentially, your assets are everything you own, and your liabilities are everything you owe. A positive net worth indicates that your assets are greater in value than your liabilities; a negative net worth signifies that your liabilities exceed your assets.

### Business Assets

The balance sheet lists a company’s assets and shows how those assets are financed, whether through debt or through issuing equity. The balance sheet provides a snapshot of how well a company’s management is using its resources. There are two types of assets on a typical balance sheet.

Current assets are assets that can be converted into cash within one fiscal year or one operating cycle. Current assets are used to facilitate day-to-day operational expenses and investments.

Current Assets Include:

Fixed assets are non-current assets that a company uses in its production or goods, and services that have a life of more than one year. Fixed assets are recorded on the balance sheet and listed as property, plant, and equipment (PP&E). Fixed assets are long-term assets and are referred to as tangible assets, meaning they can be physically touched.

Examples of fixed assets include:

• Vehicles (such as company trucks)
• Office Furniture
• Machinery
• Buildings
• Land

The two key differences with business assets are non-current assets (like fixed assets) cannot be converted readily to cash to meet short-term operational expenses or investments. Conversely, current assets are expected to be liquidated within one fiscal year or one operating cycle.

WEALTH SERIES 7:4

## Published by: Eaugrads

Evangelical Alumni Foundation seeks to fulfill "The Great Commandment and The Great Commission" to GOD's great economy. Each of us has great purpose as Sons of God. We are many in one body. Together, we are firmly planted by streams of water to bear fruits in all seasons. We shall not lack no good thing. Deuteronomy 1:11 God's Spiritual Billionaire's! Brief about our founder of Eaugrads: "JESUS"... "His pursuit of us is Relentless, His desire to Fight on our behalf is never ending; Despite the day to day distractions, designed to stop us from reaching our destinies, we can be sure of this... what God starts; He Finishes." Amen! Ministered By Tanya Harris, LLD

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