Q: How do you determine if you are a millionaire? What items do you include in your analysis?
A: What you are asking is what’s your net worth. That’s how you determine if you’re a millionaire.
Interestingly, most people have no idea what their net worth is or even how to figure it out. The Consumer Federation of America and the Financial Planning Association sponsored a survey a few years ago and found that only about half (49%) of adults know what personal net worth is. Even after survey participants were given the definition of personal net worth, almost half (48%) indicated they didn’t know exactly, or even approximately, how much wealth they have..
Your personal net worth is calculated by adding up the value of all your assets and deducting all your liabilities from that figure. With your house–the greatest source of many people’s wealth–you deduct the amount you owe on your mortgage (liability) from the approximate fair market value of the property. If the resulting number shows your house is worth more than you owe, then you have equity–an asset–in the home.
Your assets may include household and personal possessions, money in a bank or credit union, cash value built up in an insurance policy and retirement savings, plus any value you may have in your home. Your liabilities include what you owe on your home, credit cards or other loans.
If after you input all this data, you have a positive number, you have a positive net worth.
When it comes to your net worth, knowing where you stand–how much true wealth you have–can be the same kind of barometer for better managing your money. The median household net worth in the U.S. is about $59,000, according to the latest Census Bureau figures.
People’s net worth has taken a beating lately, courtesy of the recession. But things are getting a bit better. Data released from the Federal Reserve Board showed a $2 trillion increase in U.S. household net worth in the second quarter of this year. It’s up to $53.1 trillion, the first positive move upwards since the recession started in 2007.
If you haven’t calculated your net worth lately, or at all, then use the Net Worth Worksheet on this site. You’ll also find a user-friendly Personal Wealth Estimator on the America Saves Web site. America Saves is a nationwide campaign sponsored by a coalition of nonprofit, corporate and government groups, with a goal of getting more people to save.
Whether you’re a millionaire or not, it’s worth it to know your net worth. And it’s not so you can brag about how much you have. Knowing where you stand financially can help you if you should face an economic crisis and need to pull money from somewhere.
(Photo by Photos8.com)