Net Worth Calculator
At DiversiFi Capital, we believe that financial planning is not just about numbers; it's about empowering our clients to make informed decisions that lead to a thriving financial future. Net worth is a key component of financial planning—it is the foundation for budgeting, retirement modeling, and investing. When working with any client, our team of advisors continues to monitor the client’s net worth to ensure that our financial advice aligns with the client’s goals and where they are today.
Try out our Net Worth Calculator to find out your approximate net worth!
What is Net Worth?
An individual's financial net worth is a measure of financial health calculated by subtracting all liabilities (what is owed) from all assets (what is owned). Net worth is a key component of financial planning, goal setting, determining your financial well-being, investment strategy, and your estate planning needs.
Net Worth Calculator
The example on the left shows how one might calculate their net worth. By adding up all of your assets and subtracting your liabilities, you are left with your approximate net worth. In this example, the individual has a total of $2.8M in assets, minus $1.25M in liabilities, leaving them with an approximate net worth of $1.55M.
Make a copy of our Net Worth Calculator and input your own values.
Not sure how to estimate the values you see in the calculator? Keep reading!
Assets: Checking & Savings
Your checking and savings accounts, often regarded as the bedrock of your personal finances, play a pivotal role in this. Here's why understanding these balances is crucial:
Short-term Goal Planning: Whether it's a vacation, home down payment, or a new car, short-term goals often rely on funds from checking and savings. Understanding these balances aids in setting realistic timelines and strategies for your aspirations.
Liquidity Consideration: Checking and savings accounts offer high liquidity. Knowing the funds readily available helps plan for short-term goal spending and unforeseen opportunities or needs without compromising long-term investments.
Emergency Fund Assessment: A cardinal rule of personal finance is having an emergency fund (typically 3-6 months of expenses). Your savings balance helps ascertain if you're adequately prepared for unexpected financial downturns.
Beyond traditional checking and savings accounts, examples of accounts we also want to capture here are CDs and treasury bills.
Add the sum of your checking and savings accounts into cells B2 & B3.
Assets: Brokerage Accounts
Example of brokerage accounts include employer stock accounts, taxable stock accounts, and privately held stock accounts. In other words, all invested accounts that are not retirement accounts. This is important for us to understand because:
Asset Allocation & Diversification: As the balance of your brokerage accounts grow, the need for more advanced diversification strategies may into play. For example, clients with assets exceeding $2.1M are labeled as “qualified clients” which allows them to be eligible for more private equity-type investments.
Tax Implications: Brokerage funds might have tax consequences based on realized gains, dividends, or interest. Similar to #1 above, as the balance of these accounts grow, the need for more advanced tax strategies comes into play.
Liquidity Assessment: Brokerage accounts are often more liquid than other investment types, like real estate or certain retirement accounts. Understanding your liquid assets helps in planning for any short-term financial needs or opportunities.
Add the sum of your brokerage (non-retirement) accounts into cell B4.
Assets: Retirement Accounts
As our team assists you in building out your holistic financial plan, it's vital for us to have a holistic understanding of your finances, and your retirement funds stand out as one of the most significant components. Here's why it's essential to know the extent and specifics of these funds:
Goal Alignment: Knowing the current state of your retirement funds is the first step in assessing whether you're on track to meet your retirement goals. Are you positioned for a comfortable retirement, or do adjustments need to be made?
Investment Strategy: Different retirement accounts have diverse investment options. Understanding what you have allows us to ensure that your portfolio aligns with your risk tolerance and time horizon.
Tax Planning: Retirement funds often come with specific tax advantages, whether it's tax-deferred growth or tax-free withdrawals. By knowing the specifics of your funds, we can make tax-efficient decisions, optimizing your long-term wealth.
Estate Planning: For those considering legacy or estate planning, retirement accounts have unique rules about inheritance and taxation. Understanding these assets is crucial in ensuring your wishes are met with minimal tax implications for heirs.
Examples of retirement accounts include 401(K) plans, IRA accounts, and even HSA accounts.
Add the sum of your retirement accounts into cell B5.
Liabilities
Last but certainly not least, a clear view of both your assets and liabilities is crucial for a comprehensive evaluation of your financial situation. Liabilities, or the debts and obligations you owe, play a vital role in this analysis. Here's why understanding your liabilities is crucial:
Net Worth Calculation: Your net worth, a key indicator of financial health, is derived by subtracting your liabilities from your assets. A precise understanding of your debts ensures we accurately determine where you stand financially.
Debt Management Strategy: Understanding your current debt levels will help us better pair you with an advisor with the right level of expertise to put a plan together. If debt levels are high in percentage of net worth but lower in dollar amount, we would pair you with an advisor skilled in repayment strategies. On the other hand, if debt levels are high in dollars but lower in percentage of net worth, we would pair you with an advisor skilled in leverage optimization strategies.
Risk Assessment: High levels of debt can increase financial vulnerability, especially if faced with unexpected expenses or income loss. Recognizing your liability landscape aids in strategizing risk mitigation.
Credit Score Impact: Liabilities, especially if not managed well, can affect your credit score. This, in turn, influences future borrowing costs and opportunities. Keeping an eye on your debts ensures we take actions to protect and potentially enhance your credit standing.
Future Financial Planning: Whether it's buying a home, starting a business, or planning for retirement, your current liabilities play a significant role in shaping these decisions. We need to factor them in to ensure your future plans are both realistic and achievable.
Examples of liabilities include mortgages, student loans, 401(K) loans, personal lines of credit and credit card debt that is not paid off consistently each month.
Add the sum of your retirement accounts as a negative value into cell B6.
Understanding Your Net Worth
Financial Planning and Goal Setting: Knowing your net worth helps you plan for short-term and long-term financial goals. It gives a clear picture of where you stand financially, aiding in decision-making about investments, savings, and spending.
Financial Health Indicator: Net worth is a key indicator of financial health. A positive and growing net worth over time suggests good financial management, while a negative or declining net worth may indicate financial troubles or mismanagement.
Investment Strategy: Your net worth can influence your investment strategy. For instance, if you have a high net worth, you might be more inclined to make riskier investments, whereas a lower net worth might necessitate a more conservative approach.
Estate Planning: When planning your estate, knowing your net worth is essential. It helps you make informed decisions about how to distribute assets and can be important for tax planning and wealth transfer purposes.
Peace of Mind: Understanding your financial situation, including your net worth, can provide peace of mind. It can help alleviate stress about financial security and future planning.
DiversiFi Capital LLC is a registered investment adviser located in CA and may only transact business or render personalized investment advice in those states and international jurisdictions where we are registered, notice filed, or where we qualify for an exemption or exclusion from registration requirements. Any communications with prospective clients residing in jurisdictions where DiversiFi Capital LLC is not registered or licensed shall be limited so as not to trigger registration or licensing requirements.
Past performance is not indicative of future returns, and investing always carries inherent risks, including the potential loss of principal capital. Any investment strategies are specific to individual clients and may not be representative of the experiences of all clients.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed.