The term ‘net worth’ is often used when talking about the wealth of individuals, but what is it and how can it be calculated?
Net worth is calculated simply by adding together your assets and subtracting your liabilities to get a net figure.
Before we look at how you can calculate your own net worth, let’s take a look at the distribution of the Australian population by net worth.
The below three charts highlight Australian net worth trends from 2003-04 to 2013-14, and the average value of household assets and liabilities for the year 2013-14. All figures from the Australian Bureau of Statistics.
It is no surprise to see that home ownership represents the biggest asset, on average, for Australians, while the mortgage attached to the home at the same time proving the biggest asset.
What is interesting to note is that on average there is a significant second property asset and mortgage liability, indicating that many Australians have perhaps achieved part of the Australian Dream in having a second home by the ocean.
During this study the Australian Bureau of Statistics also found that net worth was, unsurprisingly, vastly unequal between homeowners and those that didn’t own their own homes. The basis for this is that we build up wealth over the course of our working lives, and as we repay our mortgage our liabilities become less, while if our property increases in value at the same time this increases the value of our assets, thus making our net worth grow quicker.
The net worth breakdown of non-homeowners vs. homeowners is demonstrated in the table below.
These figures in themselves are interesting, as the net worth of non-homeowners, despite being a fraction of that of homeowners, still seems to be relatively high considering they don’t own the biggest asset they could probably acquire. With this in mind it does seem likely that there are plenty of Australians living their own version of the Australian Dream, perhaps owning nice cars, high value goods, and with savings to spend on whatever they wish.
According to the Investopedia website, a high net worth individual is a person who has over $1million in liquid financial assets (cash in the bank). The progression from this is to be an ultra high net worth individual, for which you are generally regarded as needing to have $30million in liquid financial assets.
The top 5 individuals in Australia by net worth are highlighted in the table below. Data from Forbes’ 2016 Australian Rich List. The full table is available here.
The example table below demonstrates how you would calculate your own net worth, substitute in your own examples to get a full picture of your own net worth.
Work out your net worth now and see what yours is! As well as helping you to work out your net worth, doing this may also help you focus your mind on which liabilities you may want to focus on getting repaid quicker to continue to increase your net worth.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.
NOW FINANCE Blog subscription form