Elevate Your Net-Worth: Track Your Progress for a Greater Financial Future
- Author: Kelly Cooke
- Posted: 2024-08-29
People strive to get their financial house in order. What better way to accomplish this goal than by having a net worth of $1 million liquid in an accessible high-yield bank account? While this is a perfect goal to strive for, to be a millionaire, there is no magic number to signify optimal or preferred household wealth. Only you can decide the right financial figure where you can feel comfortable and financially secure.
FIRE Movement
Wealth can be measured in different ways. You may have heard of the millennial FIRE movement - financially independent retire early. If you want to retire early and travel the world, the first thing you want to do is analyze your annual income.
Say, for example, that your annual household income is $25,000 per year. This amount will include your annual salary, income from side hustles, and investment income. To determine the amount of your nest egg to maintain your present standard of living, multiply $25,000 by 30. You will come up with a figure of $750,000.
Now, to maintain your wealth in perpetuity, the ideal amount to draw from your nest egg annually is 4%. So, 4% of $750,000 is $30,000 per year. That amount would presently meet your current standard of living, and the principal amount from your nest egg would still grow to keep up with the average annual inflation rate of 2%.
Net Worth
The average American family has a net worth of $97,290. It is pertinent to understand your net worth so that it can grow at a healthy rate. Keep in mind; the average American millionaire has multiple sources of income.
Your overall net worth is just a time snapshot of your total financial health. Remember, it is not how much you make, but you much you keep that determines your net worth.
As your income increases, you save more money, and you pay down debts. That way, your net worth will continue to rise. Calculating your net worth is quite simple - just subtract assets from liabilities to understand your current net worth.
Locate Your Assets
Assets come in several categories. Below is a current list of the most common assets for the typical American household.
- List your business interests
- List the balance of your retirement accounts
- List the balance of your savings accounts
- List the balance of your brokerage accounts
- List the balance of your checking accounts
- Know the market equity value of your home
- List the cash value of your permanent life insurance policies
- Know the current equity value for any depreciating transportation assets like cars, boats, and motorcycles
- Know the cash value of your gold and silver bullion, expensive jewelry, designer clothing, art collections, hobbies, and furniture
Calculate Your Liabilities
Now that you know what the most common assets are, go ahead and make a note of your present liabilities.
- Mortgage balances
- Auto loan balances
- Personal Loan balances
- Business loan balances
- Credit card balances
- Student loan balances
- Outstanding tax obligations
Once you have finished calculating your assets and liabilities, what is left is a benchmark so that you can obtain financial freedom. Calculating your net worth is not supposed to be the end of the road financially; however, it is a valuable tool to track your economic progress.
Boost Your Net Worth with Robo-Advisers
If you want to invest, but cannot do it yourself, you are in luck with robo-advisers which are better known as managed portfolios. Robo-advisers are professional portfolios designed for your unique circumstances.
These are digital, artificial advisers that pick the right stock and bond mix to match your financial goals. This way, you will save money without having to speak to a human stockbroker.
The common most financial product that a robo-adviser will offer you is an index fund. You must answer certain questions so that the robo-adviser will pick the right index funds for your investment. Some of the most common questions are:
- What is your age?
- What is your income?
- What are your financial goals?
- What is your risk tolerance?
Managed portfolios will assign you to a financial group of investors with like-minded goals. With this type of investment advice, fees are typically 0.25% of assets. Portfolios are semi-customized, are low in cost, and easy to manage. Even though the assistance is not free, you just need to fund your brokerage account, and the rest is done for you. For help, consider managed portfolios with mainstay brokerage houses and apps like Stash and Wealthfront.
