Category Archives: Personal Finance

How Much Are You Worth?

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When I hear the term “net worth”, I first think about extremely wealthy people, the kind of people who have so much money that they pay people to manage it for them, the kind of people who get profiled in Forbes’ list of the wealthiest people in the world. Warren Buffett. Bill Gates. Oprah. Those folks.

But really we all have a net worth. It’s simply a measure of how much you have (assets) versus how much you owe (liabilities). And it can be a handy grade for how you’re doing financially. If your net worth is negative, you’re probably in trouble. If it’s positive, in theory you’re doing OK. If it’s very high, you’re probably doing well. However, it’s not that simple. If you could instantly sell all your assets and use the money to pay off all your debts if necessary, you’d still be above water if your net worth is positive. But some assets like houses aren’t so easy to sell. Even some financial assets, such as retirement accounts or CDs, aren’t the same as cash in the bank because they are more difficult to use and can involve penalties if used too soon.

Our situation is pretty straightforward. Our main assets are our retirement accounts and our home. The same is probably true for many of you. Our secondary assets include shorter-term investments, cash, two vehicles, and personal property. Our only liabilities are the mortgage for the house and some student loans.

I won’t post our numbers here since it seems a bit tacky, but there are people who are very open about their net worth and even post it on their blogs or turn it into an online competition. Curious about how you compare to your peers? Try CNN Money’s Net Worth Calculator.

To figure out our net worth, we could go old-school and list all our assets and liabilities on a piece of paper and add everything up, as explained in this article on About.com. Or we could hire a financial advisor like my friend Chris who has lots of letters after his/her name. But instead, we do it the easy way – make Mint.com do all the work for us and update it whenever we want.

A couple of years ago, I told you in this post about Mint, a personal finance website that can pull in your financial data from a variety of different sources and organize it a single convenient view. It can easily add up all your assets and liabilities and calculate your current net worth so you know how you’re doing. It’s not perfect. Certain websites that have unusual security measures such as multi-level authentication don’t play nicely with Mint. However, most of them work just fine. If you’re concerned about security, know that Mint has no ability to make transactions on your accounts, only to retrieve current balances. And it even has an iPhone app. Every day I use my phone to see which transactions have cleared and how much I have in my accounts. It’s been a bit depressing lately since my stock and fund balances have been declining in the market downturn, but at least I know where I stand overall. I hope you do as well, whether it’s through Mint, Quicken, a financial professional, or your own hard work.

Can I Retire?

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Too many Americans have their heads in the sand in the face of obvious savings deficits. Barring a miracle, a winning lottery ticket or a big inheritance, they’re going to be forced to dramatically cut back their lifestyles after retirement. – Laurie Nordquist, director of Wells Fargo Institutional Retirement Trust

This interesting but scary article discusses a recent survey about retirement planning among middle-class Americans. The gist of the article is simple: many middle-class Americans have no clue how much they really need to retire like they want, and they have saved only a small fraction of that amount. As a result, many won’t be able to actually stop working.

The reasons for the retirement shortfall are numerous. For some, it’s hard to save for retirement because it requires cutting back on their lifestyle now. Maybe there aren’t any good places to cut back. Some choose to stay home because their spouse earns enough to support them right now, even though working would go a long way toward closing their savings gap. But according to the survey, financial ignorance is one of the main problems. Many people simply haven’t done the math to figure out how much they’ll need to retire and how much to set aside each month to get there.

Need help? CNN has a nice retirement planning calculator that can give you a rough idea of where you’ll be with your current savings plan. Obviously, it would be more helpful to meet with an actual financial planner, especially if you aren’t comfortable with financial matters. But the online calculators are a place to start.

I don’t plan to retire from Southwest for a few more decades, but I believe in retirement planning and started saving for retirement the minute I started working full-time. Southwest helps tremendously with a generous 401k match and profitsharing that functions as a second retirement account. But we still have to make the difficult choice to sock away lots of money each month, money that we could use for any number of short-term needs like groceries, gas, medical bills, or house repairs and improvements. I avoid the temptation by funding my 401k automatically. The money goes straight from Southwest to my retirement account so I never see it. If we continue this approach throughout my career, and God doesn’t throw us any surprises that derail our plans, I am confident we’ll have enough to retire comfortably. Like about 80 percent of people my age, I have no confidence that Social Security will be available for us and don’t even consider it in my planning. If it still exists, it will be gravy.