Your net worth is not the equivalent of your paycheck nor the draw from your business.
Rather it is calculated by subtracting your current liabilities from your current assets. By
evaluating your wealth in this manner, you can better shape your financial goals and figure
out what you have to leave to your loved ones in the case of your untimely death. If you have a negative
net worth, which means that you owe more than you own, you should consult with a professional on how
you can strengthen your financial position. The goal is to be able to provide for your family without worry
and to retire hassle-free. True wealth means having a wide array of options and gaining control of your
future.
Here are a few things you can do
to optimize your net worth:
Develop a net worth statement
On the pages of BLACK ENTERPRISE, we routinely provide our readers with a worksheet that
will help you determine your net worth. To create your own basic statement, list your assets
(including property and investment) and your liabilities (including outstanding loans). Do the
math and you will have a dollar figure representative of your financial standing (see BE
Wealth Calculator).
Establish wealth goals
Figure out what you would like your net worth to be at some point in the future. Keep in mind
that your target will be largely shaped by your age and how many years you have to reach your
goal. In figuring out how well positioned you plan to be, think about issues such as the estate
you wish to pass on to your loved ones, or when you wish to retire.
Establish a plan to retire rich
No one wants to postpone retirement because of meager finances. Figure out the annual income
you will need to support your lifestyle and factor in such variables as healthcare and contin-gencies.
Multiply your current income by the rate of inflation (for example, in 25 years inflation
is estimated to grow by roughly two times current wages) and be sure to factor in your annual
projected pension and Social Security. This will give you a rough idea of what you need for
retirement on an annualized basis.
Max out your tax-deferred retirement plans
Contribute as much as you can to your 401(k) and 403(b) plans. The money you contribute will
be deducted from your taxable income. After those plans are fully funded, put $2,000 per year
into a non-deductible Roth IRA, which after the age of 59
1
⁄ 2 can provide completely tax-free
income. First, see if you qualify for a Roth IRA.
Adjust asset allocation as you age
The longer the time horizon, the more aggressive you can be. As you get older, your asset allo-cation
should shift from a stock-heavy portfolio to a mix of equities and fixed-income
investments.
PRINCIPLE NO. 5
18
Y
Declaration of Financial Empowerment
To Measure Personal Wealth By Net Worth, Not
steps


resources
Websites:
www.blackenterprise.com
http://moneycentral.msn.com
www.financecenter.com
www.quicken.com
Books:
The Millionaire Next Door: The Surprising Secrets
of America’s Wealthy
by Thomas J. Stanley & William D. Danko
The Laws of Money, the Lessons of Life: Keep
What You Have, & Create What You Deserve
by Suze Orman
Girl, Make Your Money Grow: A Sister’s Guide to
Protecting Your Future & Enriching Your Life
by Glinda Bridgforth & Gail Perry-Mason
Investing Success: How to Conquer 30 Costly
Mistakes & Multiply Your Wealth
by Lynette Khalfani
calculations
B.E. Wealth
Calculator
ASSETS
Checking account
Savings account
Savings certificates
Savings bonds
Market value of home/condo
Market value of other real estate (rental property)
Cash value of life insurance
Surrender value of annuities
Equity in pension or profit-sharing plans
IRA and Keogh plans
Market value of:
stocks
bonds
mutual funds
Other investments
(including collectibles and precious metals)
Current value of:
automobiles
household furnishings and appliances
furs and jewelry
Loans receivable
Other assets
TOTAL ASSETS
LIABILITIES
Current bills
Mortgage balance
Credit card balance
Auto loans
Student loans
Check overdraft line of credit
Home equity loan
Margin loan
Other debts
TOTAL LIABILITIES
CURRENT NET WORTH
(assets minus liabilities)
$___________
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$___________
$___________
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$___________
$___________
PRINCIPLE no.5
19
Income