What is the net worth of a person?
Put simply net worth is a current view of what you own minus what you owe.
Expanding on that a little, what you own (or in finance speak your assets) is anything that you own that has monetary value. This includes financial accounts from cash in your current account to your savings to your pensions as well as non-financial things such as your home, your car, or any antiques.
What you owe (or in finance speak your liabilities) is anything of monetary value that you owe to someone else. This includes your mortgage, any debts or car loans.
Net worth is a current snapshot of your financial position, it only looks at what you currently have and not what you want to do in the future. The difference between net worth and net wealth is that net wealth takes into account future earnings and spending. At Mintago we tend to focus on the current view (net worth) as we know how uncertain the future can be (thanks for reminding us of that 2020!).
How do you figure out your net worth?
Getting an estimate of your net worth is really simple to figure out:
- Find all of the latest bank statements of all of the different financial accounts that you own (current accounts, saving accounts, investments, pensions, ISAs you name it!)
- Get rough estimates of some of the big items that you may own, such as the value of your house.
- Add #1 and #2 together to get your assets (what you own)
- Find all of the latest statements of all the debts that you have (mortgages, car loans, credit cards etc.)
- Add these all together to get your liability (what you owe)
- Subtract your liabilities from your assets and there you have it, your net worth
We have found that people tend to have three big problems figuring out their net worth:
- Finding details of all of their accounts (particularly ones that they don’t use very often like pensions)
- Keeping track of this over time as things change as you pay off debts and spend money on a day to day basis
- Estimating the value big items that you own
For finding accounts, we recommend using a service like Mintago PensionHunter or the government’s pension finder to help hunt these accounts down.
On the keeping track of accounts over time, use an app like Mintago or MoneyDashboard to store all of your accounts and keep track of this over time.
On the estimating the value of big items, we tend to say focus on your house rather than anything else. Things change and it’s okay for it not to be perfect.
Does net worth include income?
No. Net worth is a snapshot of everything that you own minus everything that you owe therefore income does not come into it. However, any excess income in a year that you don’t spend will be included as part of your net worth the next year!
What is a good net worth?
Every couple of years the Office of National Statistics releases data on the Wealth and Assets of households in the country.
According to data from the 2014-2016 survey, in the UK the median household (line every household up in order of net worth and pick the middle one) has roughly £260k in net worth, which is just above the average UK house price of £245k.
According to the data, roughly 15% of households have a net worth of more than £1m but note that this includes the value of houses, pensions and everything else.
For the other 85% of the population, this chart may be a bit more useful to figure out where you compare. Please note that net worth varies massively by age, life stage, marital status, family status.
Is net worth important?
Net worth is one way to check your financial position and spot potential strengths and weaknesses.
Net worth isn’t a perfect picture financially and it certainly isn’t a reflection of someone’s quality of life or life satisfaction.
As net worth changes over time, curiosity about others’ net worth can motivate us to set and pursue financial goals that are important to us. However, as mentioned above, it can also make us feel unnecessarily inferior if you assume that you are comparing yourself to people in exactly the same situation as you (you are not!!).
How to increase your net worth
Wanting to boost your net worth is not a bad thing. There are a load of tactics that we use here at Mintago to build our own net worth that we want to share with you (note: for more tips on creating a financial path, see this blog post):
- Pay off your debts – As net worth is assets – liabilities one way to start to see the number increase is to pay off your debts. First step in this is to choose a debt payoff strategy. There are two main approaches here: the avalanche method (highest interest first) or the snowball method (smallest balance first). The avalanche method is the most efficient way to boost your net worth number but if this seems overwhelming the snowball method is great for confidence
- Buy your house – the best way to think of this is that rent payments are a cost but mortgage payments are paying off your debt. Therefore every month you chip away at your mortgage, your net worth increases whereas every month you pay rent nothing happens to your overall net worth!
- Save in the right accounts for you – according to Finder only 33% of Brits own shares and only 2.2m have a Stocks and Shares ISA. Money grows over time and if you don’t need it in the coming weeks and months you should consider what account is best to store it in so that it grows the most.
- Think long term – be patient and invest in things that hold their value rather than things that lose value over time. Sure a new car might be nice but they also are notorious for losing their value over time.
- Remember the purpose – having a high net worth number isn’t as important as having the right net worth number. Use a financial planning service like Mintago to figure out how much you need to enjoy the things you want in life and then focus more on enjoying them rather than your net worth figure