Financial Net Worth
Your net worth is basically the value of all household property minus household debts. Net financial assets is a variation where personal resident and lifestyle property is removed.
Note: The value of a person (i.e, their worth) and financial net worth are totally unrelated. High financial net worth does not make a good person and visa-versa.
Most personal financial manager (PFM) software products referred to in yesterday’s post include the capability to list all household assets (e.g., owned resident, boat, household goods) as well as financial or investment assets. Both your net worth and net financial assets can be reported from the PFM. Monitoring these numbers over time give an indication if you are building wealth or if it is eroding.
In conjunction with looking at spending, net worth provides another indicator or how you are doing. This can help you make decisions about changes you want to make in your ongoing financial behavior (e.g, lifestyle, investment risk management, etc)
(A reader made an interesting comment on yesterdays blog – and I paraphrase a bit – “about paying yourself first”. Tracking net worth/net financial worth will help you understand how you are doing on that front).
Thoughts on Net Worth
Where you fit in the net worth spectrum is a personal choice and the value of being classified as high net worth or not is zero. What matters is that your lifestyle meets your expectations and that the financial component required to meet that lifestyle is right for you personally. This is where financial planning, that is an awareness of how you are positioned is what really matters. This let you manage and make changes as desired. It becomes your choice, not forced upon you.
Some information I read recently (might have triggered this post somewhat)
In a 2015 study, Boston Consulting Group listed the number of millionaires based on financial assets by country. Their findings showed 418,000 millionaires in Canada (approximately 1% of the population). Including personal residence and lifestyle property this number would be much higher. Forbes indicated in a 2014 article that around the world the average millionaire had financial assets of $3.5 million.
Most research I conducted calls those with a million or more in financial assets high net worth individuals.