Using Financial Literacy to Plan for Retirement
Becoming familiar with your finances is an essential part of retirement planning. By understanding how you spend, save, or invest your money, you can plan ahead and work for the type of lifestyle you want in retirement. Once you’ve retired, you can continue to check your saving and spending to keep making good financial decisions for the future.
One important step you can take is to figure out your net worth. Your net worth shows your current financial status, like reading a report card for your finances. You can see where you’re doing well or where you can improve. Once you have that information, you can get a head start on retirement planning.
“Worth” Noting: According to the Wall Street Journal, in 2010, the average net worth per person in America was $182,000. By comparison, according to Forbes, the net worth of Microsoft’s co-founder Bill Gates was $76.8 billion as of August 27, 2015.
How to Calculate Net Worth
The way to calculate your net worth is simple:
net worth = total assets – total liabilities
Your total assets are items of value that you own. These can be things like:
- Your house
- Bank accounts
Total liabilities are money that you owe. If you still owe money on a mortgage, credit cards, or loans, these all add up to your liabilities. (This net worth article from the Wall Street Journal has other assets and liabilities to consider.) If your total liabilities (what you owe) equal more than your total assets (what you own), you’d have a negative net worth.
Why Net Worth Is Important To Retirement Planning
Your net worth will change over the course of your life. A negative net worth might not mean you’re in financial trouble, it just means at that moment in time you have more debts than assets. This means you’d need to start thinking of ways to increase your assets and/or lower your liabilities to work with your financial goals. If you make a habit of checking your net worth, you can start seeing how financially secure you are (and could become) as you plan for retirement.