Knowing your personal net worth and why it matters

This serves as continuation of the topic on how to assess your assets and liabilities, how that goes into computing your net worth, and why it matters for your finances.

So what is net worth and how do you compute it? Having understood what constitutes assets and liabilities, let’s look at this simple formula:

Net Worth = Assets – Liabilities

To begin, compile the value of all your assets onto a spreadsheet and calculate. This may include: * Physical assets like real estate property, cars, home furniture, business equipment, and anything else that you own. * Financial assets including cash, short-term and long-term financial investments like stocks, bonds, time deposits, business and rental earnings.

Liabilities are everything that you owe and need to pay for: a business, car loans, home mortgage, insurance payments, and yearly taxes. It also includes short-term loans, like your credit card.

You might need an accountant to help you assess the value of your assets and liabilities if these are spread out over long periods.

What net worth really means

After you’ve made your calculation, this all boils down to one figure: your net worth. It is your value as an individual today minus the liabilities. If your net worth is positive, great! It means that your financial decisions so far have succeeded in improving your financial standing. You may have made good investments in real estate, or are able to mitigate losses in your stock market investments, or your new business investment paid off. Whatever the reasons are, your personal net worth is good!

If your net worth is negative, it paints a picture of your financial situation, where you have unmet financial obligations that need to be addressed. These could be debts due to high mortgage payments, high tuition fees, or costly hospitalization or medical treatment. The way to address this is to reduce debt and reduce expenses, which usually requires an adjustment in your daily lifestyle.

What do you do next?

Assessing your net worth is a good exercise, regardless of the outcome, because it helps you plan what to do next.

If your net worth is negative, it only means that you will have to revisit all your sources of income and check against all your expenses. Work out a plan to reduce debt in a way that’s more manageable for you.

The easiest thing to do is to reduce your spending, whatever that may be. You can also temporarily cut spending on discretionary expenses like meals, clothes, and travel. Also, focus on further reducing your credit card bills, which have some of the highest interest rates in the market.

After exercising debt reduction, you can do debt consolidation. It may not be possible to get a reduction on car loan payments, but a recalculation on your home mortgage is possible, based on your financial standing and a reassessment of your assets and liabilities.

Growing your wealth

If your net worth is positive, you may wish to consider exploring other investments to grow your wealth.

Traditionally, financial assets might include money market instruments, stocks, bonds, mutual funds, and unit investment trust funds. However, the scope also includes assets such as real estate, commodities, or even structured products and cryptocurrency.

With such a wide variety of alternatives, it may be confusing to understand which assets are suitable for you and how they might be combined with one another to meet your wealth goals.

Talk to us

If you have a sense of your own investment risk appetite and feel comfortable looking at other options, you might be looking for investment and wealth management solutions. Wealth management services allow you to access timely market information, get guidance on how your assets might be allocated, and explore more sophisticated investment options with professional support from experienced investment specialists and relationship managers.

From online consultations to portfolio reviews and product discussions, you can talk to a portfolio officer for professional investment advice and timely reporting. We can help you choose when and how to set up a personal management trust fund for your loved ones and manage the disbursement of life insurance payments. This helps you ensure that whatever amount you save and grow today returns to you in the future.

Metrobank's Wealth Manager lets you view your outstanding treasury portfolio, explore additional investment options, and request for more in-depth discussions with one of our Investment Specialists. Some of the features include a Bond Calculator, access to foreign exchange board rates and time deposits rates, market updates curated by reputable industry experts, and more. Whether you are diversifying your portfolio or managing your wealth, we make it easier for you to securely access your investments.

Metrobank has developed an accessible online platform that helps you make informed decisions about your money. Please visit your nearest Metrobank branch or contact us at customercare@metrobank.ph to get more information. We look forward to hearing from you.