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According to a survey by digital wealth manager Personal Capital, people have widely varying opinions on what it means to be “wealthy”.
Yet most people – 74% – never see themselves falling into this category.
When 2,209 adults were asked what they would consider high net worth, the median average among all responses was $400,000.
Meanwhile, 32% of respondents agree with the widely accepted definition of a high net worth individual as having $1 million or more in investable assets.
Only 23% of survey respondents believe they will ever achieve affluent status.
Only 35% of people are convinced they know what net worth means, although 91% say they have heard of it.
Knowing your net worth is the first step to creating a good financial plan that will help you achieve your financial goals, said Michelle Brownstein, certified financial planner and senior vice president of the Private Client Group at Personal Capital in San Francisco.
“Having a good overview of your financial situation is such an important exercise,” Brownstein said.
“There’s no better time than the present to sit down and say, ‘Where am I?'” she added.
How to calculate your net worth
To determine your personal net worth, start by adding all of your assets — checking and savings accounts, 401(k) and other retirement savings, other investments, and the value of your home.
Next, subtract all of your debts, including credit card balances, student loans, and mortgages.
The result is your personal net worth.
If your net worth is negative, it means you have more debt than assets. In that case, you should pay off the high-interest balances first, Brownstein said.
If your net worth is positive but lower than you would like it to be, you can identify goals that can help you improve it, such as building an emergency fund or saving for retirement or to buy a house.
Even small adjustments, like cutting daily expenses by eating out instead of eating out, can add up to big savings over time, Brownstein said.
Plus, by prioritizing your goals, you might be able to put yourself on the right path to achieving them faster, like retiring earlier than planned, she said.
Retirement accounts represent 55% of the wealth of high net worth individuals, according to data from Personal Capital.
The survey was conducted in March by Morning Consult on behalf of Personal Capital.