Ever since Ronald Reagan asked if you were better off than four years ago, it’s been an election speech standard in times of low growth or recession. Most of us have no concrete historical record of our finances. Lacking a time machine to recall your finances in 2008, the eve of this election is an opportune time to assess your net worth so you can review it in future years.
To get a good snapshot of your finances, you need to put together a net worth statement. It may sound complex, but it can be done easily as long as you can access your online accounts and paper statements. For some of you in the front of the financial class, this will be as easy as printing out a report from Quicken or mint.com.
If you own a home, begin with its true value. Many use zillow.com and treat the “Zestimate” listed there as gospel. (“Honey our house has gone up $15,000 in the last month!”) Truthfully it’s a blunt instrument at best, good for coming up with an estimate that’s plus or minus fifteen percent of the true value. Better options are to use neighborhood comparable sales, a recent appraisal, or in a pinch what the County supplied in your latest assessment (http://www.bouldercounty.org/property/assess/pages/proprecsearch.aspx). Put the home value on the left side of the page under a column titled “Assets.”
Also under assets you should list your investment accounts: retirement plans at work, Roth and Traditional IRAs, educational savings accounts, annuities, cash value insurance policies, and taxable investment accounts. Investment properties and bank accounts should also go here. Don’t list items such as clothes, furniture, jewelry, instruments, or art unless they could be easily sold at a fair price but you can include a blue book value of your cars.
Now comes the painful part: your liabilities, which you should list on the right side of your sheet. Start with the current balance of your mortgage and other real estate loans. Then list student loans, credit card balances, lines of credit, store loans, personal loans, 401k loans, and car loans. If you’re not sure about your debts, your creditors haven’t forgotten. You’re entitled to a free credit report every year from each of three credit reporting agencies at annualcreditreport.com.
From here you should total up the assets on the left and the liabilities on the right. Then at the bottom of the totaled columns, subtract the liabilities from the assets to get your net worth. Now that you have your net worth number, what can you do with it? Consider your fellow Americans. According to the Federal Reserve data from 2010, the median net worth of households was $77,300 down from $126,400 in 2007. That’s the effect of Great Recession rampaging through the middle class.
Education matters as households with a college graduate weigh in at $195,200 compared to $16,100 for those who didn’t graduate high school. Finally for those of you who are better off, the median net worth of the 75th through 90th percentile was $482,700 and the top decile had a median of $1.86 million. This contrasts with the lowest quartile of net worth with a median under $50.
Of course your net worth is just one measure of your overall wellness. Write down your non-financial goals for the upcoming four years as well. Then break out your net worth time capsule before the next presidential election to see if you really are better off than you were four years ago.