What Constitutes True Net Worth?

What Constitutes True Net Worth?

Do you know what you are worth, and is it that important anyway? Net worth is taking center stage as many financial bloggers publicly track theirs’ monthly, and there is even a website, , where you can “track, share, and compare” yours with others on the site. This is taken to a bit of an extreme in my mind, but the sad reality is that most of us are clueless when it comes to knowing our net worth. We blindly acquire assets and incur debt without knowing its impact our bottom line.

So what exactly is net worth? It is the number you get when you subtract your total liabilities [everything you owe] from your total assets [everything you own]. It is a point in time measurement, as it typically changes daily, and is an important financial planning tool….especially when it comes to planning for financial goals. Ideally it should be a positive number, where you have more assets than liabilities. Net worth is an informative barometer of your overall financial health, and in particular the direction it is heading, if you monitor it quarterly or annually.

Unfortunately some people confuse net worth with self-worth, and any discussion about net worth begs the question, “What really is ‘true’ wealth’ anyway?” I invite you to broaden your notion of net worth and want to share some expansive thinking about ‘assets’ and ‘liabilities’ from two mentors I have studied with.

One mentor, Spencer Sherman, financial planner and author of The Cure for Money Madness, offers a unique tool for assessing net worth from a more holistic viewpoint, what he calls Actual Net Worth. For example, we so often take our health for granted, which is actually our most precious asset. Sherman challenges us with the question, “Would you prefer to be a sick billionaire or a poor person in excellent health?” Given that most of us would prefer the latter he surmises that health must have a monetary value. So in addition to the monetary assets included in a traditional net worth statement, Sherman’s Actual Net Worth worksheet includes “human assets” such as health, potential lifetime income, untapped skills and creativity, friends and family, and service to the world.

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Another mentor, Mark Silver, who teaches a course entitled, The Heart of Money, questions the concept of “liabilities” in a similar way. He views financial debt as a “dependency” on others for a service or item previously provided. He asserts that all of us have liabilities/dependencies even if they are not financial in nature. He asks us to examine our lives and find areas of dependence where we owe something that feels emotionally uncomfortable to us or where we feel ‘indebted’ in some way, and how this is impacting the “net worth” of our lives.

Approaching ‘net worth’ in this holistic way keeps things in perspective and provides an opportunity for us to embrace ALL our assets, as well as an opportunity to evaluate the ‘cost’ of carrying non-financial liabilities in our lives. It also reminds us that focusing purely on money as a measure of ‘net worth’ is an overly simplistic and potentially devaluing vantage point.

Financially Smitten Call to Action for YOU today:

Visit Spencer Sherman’s website and download his Actual Net Worth worksheet. It is available for free on his home page by clicking here. Take some time to complete it and reflect on what it’s like to know your actual net worth number. Then, consider any non-financial liabilities, or “debts” you are carrying that are diminishing your ‘bottom line.’ Are there any situations and/or relationships that feel like ‘debt’ to you-in time and/or energy? What steps do you need to take to unburden yourself from this indebtedness?