VOL. 129 | NO. 80 | Thursday, April 24, 2014
Rays of Wisdom
Dana and Ray Brandon
How Much of Your Net Worth is Yours?
By Ray and Dana Brandon
Ray’s take: Net worth is defined as the single amount that represents how much a person would have if he or she sold all assets and paid off all debt. In other words: Assets - Liabilities = Net worth. Seems pretty straightforward. But that does not paint the total picture.
There is more to know. And that more detailed definition of net worth can change the picture drastically.
Everyone has a general idea of his or her net worth. Usually based on knowing that they have a 401(k), home equity, mutual funds, stock options or any number of combinations of assets.
Some people calculate it obsessively (not a good idea); some never (even worse); once a year is about right.
So do you regularly sit down, using real numbers, and calculate that amount? More importantly, have you determined how much of that net worth is actually yours?
Tax liability is one of those details that can affect your actual net worth. Have you determined if the accounts you are using for net worth are taxable? Start with your retirement accounts. The tax deduction and tax deferral of gains are nice at the time, but that’s a lot tax to pay someday. Then look at tax deferred accounts like fixed and variable annuities – they can build up a lot of taxable gains. Even non-qualified mutual funds can build significant unrealized capital gains. The IRS can be a significant, but unnamed, beneficiary of many of your accounts.
How about that equity you have built up in your home? Home equity has long been considered a tool in financial planning but even with the “free gain” the IRS allows, you have to sell and buy someplace else (and those expenses are significant). And “downsized” or “retirement ready” homes are not as available or inexpensive as many hope.
It’s vitally important to your future to have a real picture of your net worth.
So get those documents together, and consult a financial or tax adviser to assist you with obtaining an accurate picture.
Dana’s take: Could our personal net worth be figured as our strengths minus our faults? Perhaps our daily net worth could be calculated as our good deeds minus our bad deeds.
The New York Times website ran a documentary, “Slomo,” about a North Carolina neurologist turned California rollerblader. In it, the doctor told of taking a daily spiritual reckoning and deciding how much of his workday resulted in spiritual gain and how much in financial gain. He noticed the ratio sliding toward the financial. Ultimately, he cashed out and began a spiritual journey, skating the beach boardwalks of San Diego.
Try taking an accounting of your personal net worth and see where you might want to invest or divest for your spiritual well-being.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.