A woman balancing her personal net worth

Written by 11:14 am Money & Lifestyle

The ikigai guide to your personal net worth

About 7 minutes to read

Born in 1964, CEO and entrepreneur, Jeffery Bezos is not only the subject of a bizarrely catchy song by Bo Burnham, but he’s currently the richest man in the world. 

His personal net worth sits at an estimated $200.5 billion and is mostly tied up in Amazon shares (of which he owns 10%), an estimated $19 billion worth of cash and investments, $500 million in real estate, as well as aerospace company Blue Origin and the Washington Post.

Dale Arasa broke this down, showing that Bezos makes around $321m per day, $149,353 per minute, or $3,715 per second. Yes, that means that he makes more in a second than most people do in a monthly salary.  And yes, that means that he’s so wealthy that it’s almost literally unimaginable

The thing is, we’re slightly obsessed with the idea of personal net worth. The battle for the number one spot, which this year ricocheted between Bezos and LVMH chief, Bernard Arnault, is just the tip of the conversation when it comes to net worth. From the Forbes and Bloomberg Billionaires lists to our fascination with the wealth of the rich and famous – think Beyonce, Ellen Pompeo, Prince William, Zhang Yiming, Max Verstappen – we’re always being told about the huge fortunes that people in the public eye have amassed. Yet many of us haven’t ever really thought about our own personal net worth – let alone why it’s important or how it can play a part in understanding our financial health. 

But it’s time to change that and dig into what net worth actually means.

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What is personal net worth?

In its absolute simplest form, the definition of your personal net worth is the number you get when you subtract what you owe from what you own. 

It’s the value of all your assets (financial and non-financial) minus your total outstanding liabilities (debts). In other words, you need to total up everything in your bank balance, pension, investment portfolio and so on, along with the value of everything else you own like your home, your jewellery, books, art collection etc. Then you have to subtract any debts, like a credit card, mortgage or student loan from that number to get your net worth.

“Your net worth can be an indicator of your financial health,” says Edgar de Picciotto, co-founder of ikigai. “Your salary isn’t included in your personal net worth, so you can be earning a lot but have a low net worth because you’re also spending a lot. This can indicate things like lifestyle inflation, a large amount of liabilities or a lack of savings, investments etc. But someone on a modest salary could have a high net worth because they’re strong savers, invest in appreciating assets and live within their means.” 

How does personal net worth work? 

Net worth essentially provides a snapshot of our current financial position, similar to the book value of a company. 

As Ron Lieber wrote for the New York Times, “Net worth paints a bigger picture than income; it rewards the saver and reveals the drain that big borrowers put on their finances. And it vividly reminds people who think only in terms of monthly payments that their debts may be with them for a good long while.”

Most of the time, personal net worth works by showing whether you have a positive or negative financial position. If positive, then the value of your assets is greater than your liabilities; but if negative, your liabilities will exceed your assets. 

The outcome will usually be positive. Most of us own more than we owe and are worth more than we think. And when we reach certain milestones, we become notable to certain banks or financial providers as ‘affluent’ (if we have over $100,000 in investable assets) or ‘high net worth individuals’ (if we have over $1m). Some celebrities and business leaders like Bezos are then ‘ultra-high net worths’ because they have over $30m in investable assets – which, yes, is somewhat huge.

However, if you have a significant amount of debt and no real assets, then your position could be negative. This is very common when you’re younger – of course it is, if you’re just out of university, have a student loan, an entry level job and few assets. Saying that, it’s worth noting that wealth inequality, especially post-pandemic, also plays a role. Recent data from McKinsey suggested that as many as 3.5 million Black American households have a negative net worth (or 19% of Black American families). Meanwhile, one in four UK adults said the pandemic pushed them into debt – with the average amount of debt owed in the UK at the beginning of the year sitting at £9,246 a person. The BBC also cited data from the Resolution Foundation, suggesting that the bottom tenth of UK families have less than £3 of wealth per adult. 

The important thing about personal net worth is that it’s measuring your financial position in a way that is more than just theoretical. It allows you to see if you’re really growing your wealth or just increasing your pay packet. And this in turn is something you can measure and monitor on an annual basis to work out if you’re moving closer to your goals. 

What is the average net worth of a millennial? 

As the oldest head into their 40s and the youngest their 30s, millennials are hitting their prime earning and spending years. And we’re far more savvy about money than we’re often given credit for. Research from Clearpay suggests that 61% of millennials actually budget and save more responsibly than older generations, whilst NerdWallet’s survey of millennial savers revealed that over three in five have a clear savings strategy and more than half plan to invest their savings in stocks and shares, bonds or ISAs in 2021. 

There’s a growing number of affluent millennials across the globe. In the UK, according to Occam Investing, younger millennials (25-34) are looking at a personal net worth of around £85,000 to £200,000, whilst older millennials (34-44) sit between £200,000 and £300,000. And as we grow older, earning more as we go, there’s clear signs that people our age are becoming millionaires too. 

The Wealthster, a blog dedicated to the FIRE movement, illustrated this through a chart that shows how around 15% of older millennials have a net worth of over £500,000. This is compared to just 2% of younger millennials. Likewise, there’s a big increase in the number of people with a net worth over £200,000 over the age of 35 compared to below it. 

“Knowing your net worth gives you a clearer picture of your wealth and opens up the conversation on how you can grow it,” says Edgar. “Investing, for instance, can help us grow our wealth, particularly in times where inflation is eating away at our cash savings. Knowing where you stand compared to your peers can be helpful and give you a new perspective on where you are compared to where you want to be.”

How to calculate your net worth

As ever, there are some brilliant online calculators to help you work out your net worth and how it compares to others your age or within wider society. This includes on platforms like NerdWallet and Lumio.

However, calculating it yourself is pretty simple if you want to do it yourself or set up a spreadsheet to keep tabs. 

Step One: List out your assets and their value 

Your assets are anything that you own that has value, including: the total of your current account and savings accounts; the total value of your current stocks, bonds, ISAs, and pension pots; the value of your property, your car, your art, your collectibles or intangible assets like patents and trademarks. You technically also want to include things like household belongings too – think how spenny furniture can be or if you have any antiques passed down from your family – it all adds up.  

The important thing here is to take a little time to work out things that may be appreciating or depreciating in value (ie. going up or down). Right now, for example, your home might be worth £700,000 on the market, but a few months ago it might only have been £650,000. The same could go for your investment portfolio as markets move. For the most accurate results, you’ll want to look at these figures semi-regularly and take note of changes at least year on year. 

Step two: Work out your liabilities 

This is the less fun bit: it’s time to work out how much debt you have. You need to know the total of your liabilities so you can subtract it from your net worth. Your liabilities should account for major things like your mortgage and student loan as well as more everyday personal liabilities – like your credit card, outstanding loans for a car, business, or personal expenses etc. 

Step three: Assets – Liabilities = Net Worth 

Super simple: once you have the total value of your assets and subtract the total value of your liabilities, you can see your personal net worth.

Whether that number is big, small, positive, negative, above or below average or right in the middle, you now have a great place to start from in order to understand your financial position. If you calculate this number on a regular basis – for instance as part of a new year’s audit or a six-monthly check-in, you’ll be able to measure how your wealth is growing and how close you’re getting to achieving certain goals. You can also do this more often if you’re in the process of buying a first home, moving to a bigger property or attempting to reduce your debt. 

Personal net worth is a simple but useful tool to better understand your finances 

Net worth may not seem like the most practical tool in your arsenal, but understanding it and applying it properly can help you really understand your financial position. 

As Edgar explains, “Calculating your net worth is very easy and gives you something useful as a comparison – either against yourself year on year or considering your position against that of others. In terms of your finances and your financial health, not only does the process ask you to examine what you own and consider your debt, it also gives you a better understanding of how close you are to your goals or what might be standing in the way of you achieving them.”

The important thing is not to get too caught up in the numbers. Unless you buy something big like a property or come into an inheritance, your net worth is unlikely to rise dramatically in too short a time frame. Likewise, whilst we have a great deal of natural curiosity about our friends and peers, it’s important not to compare yourself in a way that inspires FOMO or jealousy. 

“Net worth doesn’t exactly correlate to financial freedom or financial health,” adds Edgar. “It doesn’t tell the whole story. Two people could have the same net worth today but if one person had a lot in savings and another in investments, their circumstances could look very different in a year depending on market movements or inflation.”

The fact is that net worth is a useful tool, especially as we get started on building a better relationship with our money and growing our wealth – but it’s not the be and end all of personal finance. 

As we’re always saying: you’re more than the sum of your bank account. Your worth isn’t defined by how much you do or don’t have in debt. 

Your net worth is a place to start. It isn’t a place to stop. 

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We built ikigai specifically for those who want to bring their lifestyle to the next level, by taking better care of their finances.

ikigai beautifully combines wealth management and everyday banking in one single app. And by doing so, it creates a whole new world of opportunities.

Visit https://ikigai.money to find out more.

Maurizio & Edgar, Co-Founders, ikigai

When investing, your capital is at risk.

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Tags: , , Last modified: 6 August 2021