The Importance of Knowing

For nearly two decades, financial advisor Tania Kvakic has guided clients at RBC Wealth Management in creating a financial plan that reflects their lifestyle, values and goals. Here she shares with us why it’s crucial to understand your net worth in order to manage, protect and grow your wealth.

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What are you worth—financially, that is? Knowing the answer is an important first step in getting your financial house in order. You can’t be effective in planning for tomorrow until you know where you stand today.

Your net worth is what you own, less what you owe. It is determined by adding your liquid and illiquid assets (such as household and personal possessions, bank accounts, investment accounts, 401(k) and IRA accounts, business interests, cash value insurance policies and the market value of your home) and subtracting your liabilities (your mortgage balance outstanding, car loans, student loans, etc.). The difference between your assets and liabilities is your net worth.

A comprehensive review of your net worth sets the foundation for effective planning and provides a tangible barometer for better money management. An accurate net worth statement helps you identify the value and efficiency of your assets and liabilities.

Here are a few examples:

Cash flow and liquidity – Those who know their personal net worth are more likely to spend, borrow and save sensibly.
Titling of assets – How you own your assets is important. The wrong ownership arrangement can be problematic and can have a major effect on your family’s long-term financial future.
Beneficiary designations – Conduct a beneficiary review of all qualified assets in your household to ensure they are aligned with your estate planning objectives. These include employer-sponsored retirement plans, IRAs and life insurance policies.
Composition – This is the balance between your cash-producing and non-cash-producing assets. An accurate assessment will reveal items of concern, such as a lack of liquidity or inadequate diversification. An undiversified balance sheet is a red flag.
Business interests – If you are an owner, what’s the business worth? How is the organization structured? If succession planning is a consideration, is a buy-sell agreement in force and up to date? Consider employing the services of a business valuation specialist to get a clear and realistic appraisal of what the business is worth if you were prepared to sell today.

As a rule, your net worth should be recalculated every year as part of an annual financial physical exam. Take steps today to assess where you stand, and don’t be afraid to consult with a professional team of advisors for advice on helping preserve and enhance your balance sheet going forward.

Disclaimer: RBC Wealth Management, A division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC

Photographed by Fabien & Laura Castro