Adding Up Personal Net Worth

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Alex Chadwick talks with Day to Day personal finance contributor Michelle Singletary about the importance of figuring out personal net worth once a year by adding up assets and liabilities. Singletary writes the syndicated column "The Color of Money" for The Washington Post.

ALEX CHADWICK, host:

More on money matters now. Figuring out what you are worth could take a lifetime, but figuring out your net worth should be a regular part of your personal money management plan, yet most of us have no idea how to do it. Joining us with some how-tos of net worth is Michelle Singletary our regular contributor on matters of personal finance.

Michelle welcome back, and why is it important to know net worth exactly rather than just have a kind of a sense of, well, I'm doing okay?

Ms. MICHELLE SINGLETARY (Personal Finance Columnist, The Washington Post): Because it's important to know where you stand financially. Often times we just look at the asset side and don't include what you owe. And as a result, for example, as you get closer to retirement, if you don't have a clear picture of where the money's gonna come for retirement, you're gonna end up having to work longer or harder to make that goal.

CHADWICK: And you're saying this is something we can all do. You don't have to hire an accountant to do this for you. How do you do it; you calculate your net worth?

Ms. SINGLETARY: There are two sides of your net worth, there's your assets and your liability. And under assets that would include your home, retirement account, any stocks, cash that you have, cash value in an insurance policy, the vehicles that you own, household goods, all of those things are on your asset's side. Then you subtract from that your liabilities; what you own on your home, credit card debt, income taxes due, anything that is an obligation, and you subject that from your assets and what you get is your net worth.

CHADWICK: Is there some way that this is going to be easier if I do it online?

Ms. SINGLETARY: Absolutely. There's a really great calculator on AmericaSaves.org, all one word, AmericaSaves.org; and you just plug in the information. Now when you go to the computer you need to have all the information; how much you owe on your house, how much you think your house is worth, and you can get that by calling a local real estate agent, you can look in your local newspaper to see what homes are selling for in your area. So you're gonna need all this information; your credit card debts, any outstanding amount you owe on your car or your student loans, and you just plug it in and it helps you calculate your net worth.

CHADWICK: And this is something you need to do regularly; I mean, it's not something you do once and then you say, okay, that's done. This is a regular task like filing your taxes every year maybe?

Ms. SINGLETARY: Yes, you need to calculate your net worth every single year because you want to track how it's going. Often times people just look at the assets side. They go, oh, yes, my house value is going up, or you know, I've got money in the bank, but they don't consider the credit card debt or the auto loan that they just took out. So that's why it's important to do the whole calculation so you can get a complete picture.

CHADWICK: So how long would this take and how difficult is it? What kind of a task is it? Let's just imagine that, well, some people have never done this.

Ms. SINGLETARY: You know, it doesn't take that long as long as when you sit down you've got all your paperwork. For some people it may take a long time because they don't want to face the truth that the liability side of their financial picture is pretty heavy. But listen, you're gonna be doing it soon anyway because of tax time. You're gonna have all that paperwork right there in front of you, or most of it, so use that time to calculate your net worth.

CHADWICK: The very worthwhile Michelle Singletary writes the syndicated column The Color of Money. She's also our regular personal finance contributor. Michelle thank you.

Ms. SINGLETARY: You're so welcome.

CHADWICK: And if there is something you would like to ask Michelle, please go to our Web site at NPR.org and click on the contact us link, it's on the top of every page. Send your questions and please put Michelle in the subject line.

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