This month, we're looking at a building block of personal finance that everyone should know... net worth. Net worth is defined by the Merriam-Webster dictionary as "the excess of the value of assets over liabilities". In basic terms, all you own minus all you owe.

Net Worth = Assets - Debt

Assets include properties, investments, bank accounts, and collectables (such as art or antiques). Some like to include vehicles as assets, but since their value depreciates quickly, I leave them out.

Debts include mortgages, lines of credit, credit cards, and other loans.

High Net Worth Individuals (HNWIs)

We often hear about net worth in the media when discussing wealthy individuals - who they are, how they got what they have... the lifestyles of the rich and famous. And financial gurus love claiming they can help you become one - usually by giving them money.

HNWIs, according to Investopedia, have $1M USD (or $1.35M CDN) in liquid assets (investments and bank accounts) and are classified as:

Comparing Your Net Worth

Most people aren't shooting for HNWI status; rather, they want to know if they are building their net worth at a rate that will allow them to reach their goals. There are two ways to obtain the answer to this question. The best option is to do a comprehensive, tailor-made financial plan with your portfolio manager/financial advisor. This option requires in-depth meetings to discuss your finances and goals. The second option is the quick and easy option - compare yourself to others in a similar situation. This option is better for those wanting a general snapshot of their standing - perhaps before doing more complex planning. For this choice, I recommend KLT's Net Worth Calculator - it is free, confidential, and gives you helpful tips to improve your net worth regardless of your results.

Financial Health Tracker

Practically speaking, knowing your net worth is useful. People often focus on their investment and mortgage statements - sometimes obsessively - but fail to look at how they are doing overall. It's a case of not seeing the forest for the trees.

Net worth is your big picture view. I suggest calculating your net worth every 6-12 months and asking yourself:

• What areas are improving, and which need improvement?
• How does your mortgage or property value fit into the big picture?
• Are your liquid assets growing enough to eventually retire?
• How are your liquid assets holding up in retirement?

Remember, few people build their financial portfolios overnight. It takes time. Use your current net worth as motivation to meet your goals.

For strategies on building and managing your net worth, contact us at KLT Wealth Management.

- Courtney Beach, QAFP