Your net worth is the difference between what you own and what you owe. It's the amount of cash you'd have in your back pocket if you sold everything and paid off all your debts today. Your net worth tells you where you stand financially.
It’s important to calculate your net worth every year. You can start by writing down the goal for your net worth in 12 months time. Then think about how you will achieve this goal. For example, when you get a pay rise you could save some of the extra money, rather than spending it all. Or the value of your assets may change. Over a few years, you can then graph the changes to your net worth.
Over your working life, your net worth should increase. The higher it is when you retire, the better your lifestyle will be. Most people when they retire want to be debt free, have a house, and have NZ Superannuation and some private savings to live on. Keeping these points in mind is important when considering your progress.
The composition of your net worth - that is, how it's made up - is important too. You need to look at the balance between assets that provide a cash income, like an investment fund, and non-cash producing assets like your house. As you approach the end of your working life, you need to replace the income from your job with income from NZ Superannuation and investments. You should change the composition of your net worth after retirement to include more cash producing investments.
When you are thinking about building net worth, it helps to take a long-term view. For example, taking on a student loan can have a negative effect on your financial net worth in the short term. But if the education you receive boosts your earning power over your working life, you should be better off in the long term.
To find out your net worth, visit
Sorted’s net worth calculator. Remember, knowing your worth is the first step in achieving your financial goals. Once you know where you stand you can start planning for the future.
