Elizabeth Bartlett, CFP®
For many reasons, women may find themselves reliant upon a partner or loved one to manage the family money. A lack of understanding regarding your personal finances, particularly your net worth, can be detrimental when faced with unexpected events. As women seek to engage more actively in their finances, gain an understanding of their financial picture, and make wise financial decisions for themselves and their families, identifying their net worth is a fundamental place to start.
While simple in concept, this can appear to be a daunting exercise, especially for individuals whose balance sheet may be more complicated or involved. There can be an additional layer of complexity if a woman’s partner is responsible for the financial matters of the household, and she has not been as involved. For some women, it may be as simple as making this aspect of their life a higher priority. For others, the anticipation of having to navigate unfamiliar and perhaps uncomfortable discussions with a partner may also be an obstacle to taking action.
Regardless of the challenging conversations or time commitment, understanding your net worth is essential to your financial well-being. This knowledge enables you to have a realistic understanding of where your finances stand today, plan your next steps regarding your short-term and long-term financial goals, and help you make informed financial decisions going forward.
Why should you know your net worth?
Knowing your net worth, which is the total value of your assets minus your liabilities, can tell you a great deal about your current financial health.
It is essential for both individuals in a partnership or marriage to be aware of their financial resources. Unforeseen circumstances could occur where knowing your net worth might be critical.
Loss of your spouse or partner: Women tend to have longer life expectancies. For this reason, there is a strong likelihood that you will be responsible for your household finances at some point. If your spouse or partner predeceases you, you may become the sole decision-maker for your family’s finances. If you do not have a complete view of all of your assets, who manages them, how accounts are titled, or who the named beneficiaries are, being uninformed about these aspects could create additional stress during an already difficult time. If providing for your family’s income is an additional role you must assume, a lack of preparation could increase the risk of financial hardship, adding to the emotional and logistical challenges of taking on new responsibilities.
Divorce: Knowing your net worth as a couple before there may be a possibility of divorce protects and helps prepare you for a future without your spouse or partner regardless of the circumstances. If a divorce is sudden or contentious, understanding the assets you shared as a couple is a foundation for planning a newly single life. If you know how your assets are structured, where they are located, and the value of what funds are available, calculating your individual net worth may help you think strategically through the division of the assets and the potential tax implications.
Incapacity: In the event you become incapacitated, documentation regarding your net worth will be invaluable to your loved ones to help them identify the financial resources available for costs associated with your healthcare and other personal expenses. That information would also inform any planning that would need to occur to care for your family’s income and long-term financial goals going forward.
Legacy planning: With future generations in mind, knowing your net worth will allow you to strategically plan for the distribution of your estate. With this information, you may consider making lifetime gifts, establishing and funding trusts, or updating your estate planning documents to reflect your wishes.
Succession planning: For any prudent business owner, creating a succession plan is imperative. Determining your net worth may shed light on the most optimal strategy for you and your business. Knowing your financial standing may help you assess whether you have sufficient funds to meet your cash flow needs should you decide to sell the business in the future.
How do you determine your net worth?
The first step is to gather your financial documents and statements.
Some records may be easier to obtain or locate than others. Depending on your balance sheet, you may need to request current valuations from various sources. This part of the process may require a conversation with your spouse, partner, or another family member if you are unaware of assets and their status. You may need to reach out to current or former employers, financial advisors, financial institutions, or tax and legal professionals.
Checklist for calculating your net worth
- Deposit accounts/CDs
- Treasuries/savings bonds
- Investment accounts
- Retirement accounts
- Pension plans/company-sponsored retirement plans
- Executive compensation
- Health savings account
- Annuities
- Life insurance cash value
- Real estate
- Personal property
- Business entities
- Notes receivable
- UTMA or 529 accounts
- Loans (mortgages, lines of credit, notes payable, other)
Create a system for inputting and organizing your information. You can use a spreadsheet or an online application to document your financial information. Also, check with your financial institutions as many banks and brokerage firms already have online tools that allow you to view all your assets and liabilities on a single dashboard once your financial information has been entered.
Calculate your net worth. Once you have organized your documentation, get a picture of your total financial situation by following these three steps:
- Identify your assets such as investments, real estate, personal property, business entities, cash value in life insurance policies, etc.
- Identify your liabilities such as mortgage(s), loans, credit card debt, etc.
- Calculate your net worth by subtracting your total liabilities from your total assets.
Total Assets – Total Liabilities = Net Worth
Once you determine your net worth, it will be easier to proceed with other financial planning steps such as:
- Setting short-term and long-term financial goals
- Tracking your bank accounts, investments, loans, credit cards, real estate holdings, personal property, business valuation, insurance policies, etc.
- Creating or adjusting your household budget
- Monitoring your spending/saving
- Examining your investments
- Establishing or reviewing your estate plan
Calculating your net worth is well worth the time and effort to gather all your financial information and consolidate the records in one place for your own peace of mind and for the benefit of those you love.
Consider comprehensive financial planning services from Commerce Trust
Having an accurate assessment of your current net worth is an important step in the financial planning process to help achieve your financial goals. At Commerce Trust, our wealth management teams are comprised of financial planning, investment management, and estate planning specialists who can develop a comprehensive financial plan tailored to your unique goals and circumstances.
Contact Commerce Trust today to learn more about the benefits of working with a financial planner to help determine and track your net worth now and in the future.
Certified Financial Planner Board of Standards. Inc. (CFP Board) owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.
The opinions and other information in the commentary are provided as of December 9, 2024. This summary is intended to provide general information only, and may be of value to the reader and audience
This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such.
Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
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