What is your net worth?
Daniel Ochefu(Punch)
Daniel Ochefu(Punch)
Just as companies take stock of their performances at annual general meeting, individuals can also begin to take a retrospect on their financial positions.
Experts believe that an assessment of an individual’s net worth helps to meet his goals.
Mr. Austin Nweze of Lagos Business School, says, “Your net worth is the value of your assets, minus the total of all your liabilities. Put another way, it is what you own minus what you owe.
“If you owe more than you own, you have a negative net worth. If you own more than you owe you have a positive net worth.”
According to him, taking a retrospect at one’s net worth can help in meeting one’s goals.
He says net worth enables one to examine and to know his financial status at every given point in time.
“But in Nigeria, not many people take stock of their performances. This has resulted in many unaccomplished goals,” says Mrs. Rachel Apine, a trader in Lagos.
She notes that an assessment of net worth helps individuals to stay within their budget limits.
“Don’t always keep buying what you want. It will get you in trouble,” a certified financial planner Mari Adam agrees with Apine.
She says living above your means is the financial equivalent of slow carbon monoxide poisoning.”
“It makes pre-existing financial problems worse and can be the cause of headaches and shortness of breath until you address the source of your problem,” Adam adds.
Besides, Adam says positive net worth can be achieved when people spend less on cars.
Money Magazine has estimated that driving less expensive cars could yield an additional $180,000 over 30 years, assuming savings are invested.
“Remember, in addition to your monthly payments, you will be paying for insurance, fuel, maintenance and repairs,” the magazine says.
It states that net worth is a measure of assets minus your liabilities.
“But all assets are not created equal. Hanging on to assets that don’t do much for you may hurt your net worth long-term,” the report adds.
Sometimes, you should “move an asset from one point to another where it can produce more income. Monetise something that’s not monetised,” says certified financial planner Adam.
She cites a case of a couple in their 70s who were house rich but cash poor, down to their last few thousand dollars.
According to her, they chose to sell their house, bank the money and let it produce income while they rented another.
That saved them money in the long run since they otherwise would have needed to take equity out of the house to make ends meet. “Net worth is one thing, but cash flow is another. That’s where people go wrong with real estate.”
While it is never smart to be penny-wise and pound-foolish when making important investments like buying or renting a new home, it’s also never smart to think, “Oh, what’s another hundred thousand dollars when I’m already spending more than I ever have?” says Adam.
CNN Money recommends as a general guideline that it is best not to spend more than two and half times your income on a home.
According to CNN Money, your total housing payments should not exceed 28 per cent of your gross income while total debt payments should come in under 36 per cent.”
Adams says it will be wise to review your stock portfolio.
“Don’t buy and forget” or “own and ignore. Your inertia could be costing you. So, look at everything with a fresh eye. And ask yourself, What does this do for me?” she notes.
She also advises that individuals should consider their stock and bond investments,” she says.
“Do they still fit with your investment plan? (Do you even have an investment plan?) Maybe you have old stocks whose growth days are past and which may be trading at a loss from when you got them eons ago.
“In that case, you might harvest your tax losses. That will offset your capital gains now and in the future, thereby reducing your tax bill. And it will free up money to be invested more profitably.”
Besides, she says it is pertinent to consider cash holdings.
“If you have tens of thousands of dollars, or more, sitting in low-rate savings accounts or certificates of deposit, “you’re just giving money away,” Adam explains.
