Financial Planning For Couples: What Are You Worth?
Couples become financially secure by building their net worth. Net worth is calculated by subtracting your liabilities (what you owe) from your assets (what you own). It is a snapshot of where you currently stand.
There are lots of net worth calculators online, such as this one from Get Smarter About Money or, you can make up your own spreadsheet so you can compare it from year-to-year.
Why should you track your net worth?
To start building your net worth you need to understand where you are starting from today so you can plan where you want to go. Go through your statements and record your current assets and liabilities. If you don’t know the current value of an asset, do a bit of research.
It may be disheartening to see a negative net worth. This is quite common when you are first starting out with a large mortgage and/or other debts, and little in the way of savings. Or, you might discover that you are satisfied with where you are right now and you just need to stick with your plan.
Related: The right way to calculate net worth
You can grow your net worth two ways.
- Reduce your debts – mortgage, loans and credit card balances, and
- Grow your assets – home, investments, or business
People who regularly track their net worth make greater progress on their goals than those you don’t.
How do you measure up?
We all like to compare ourselves to others to see where we stand. But, the problem with most on-line calculators is they only take one reference point into consideration – either your age or your current income. Here’s one that’s a bit more detailed from MoneySense.
However, your net worth should really be based on what your goals are for the future. As author Stephen Covey states, “begin with the end in mind.” You can determine where you want to be with a retirement calculator which factors in taxes and inflation and approximate what your home will be worth in the future with an inflation calculator.
Say you’ve determined that you will need a net worth of $2 million by age 65 – not an unreasonable amount for the average 30 to 50-year-old couple to aim for. How will this play out?
Working backward, here is an example of net-worth milestones as laid out in Lesley Scorgie’s book The Modern Couple’s Money Guide:
| AGE | NET WORTH | AGE | NET WORTH |
| 25 | 0 | 50 | $ 700,000 |
| 30 | $ 70,000 | 55 | $1,000,000 |
| 35 | $ 165,000 | 60 | $1,400,000 |
| 40 | $ 300.000 | 65 | $2,000,000 |
| 45 | $465,000 |
Create a 5-year plan to set your own targets for net worth growth and each year decide on how you will get there.
Your plan may require some changes in your spending patterns. You may decide to implement a rigorous debt reduction strategy. Your household income is also an important component of net worth growth. Perhaps you can increase your income by getting a promotion at work, working full time instead of part time, having a side business, or changing jobs entirely.
Monitoring net worth growth
The best way to monitor your net worth growth is to do periodic updates to your personal net worth tracker – at a minimum of once a year. You’ll be in a better position to know if your financial situation is improving.
If you find you’re getting off track, do some course corrections and carry on. Growth may not be linear due to life circumstances and market fluctuations. However, when you implement the twin strategies of reducing debt and growing assets you will see that net worth figure grow. There’s nothing more exciting than watching yourself get closer and closer to financial freedom.
Final thoughts
Net worth is the single best indictor of your financial health and wealth. Building net worth is not merely based on how much money you make; it’s about protecting and keeping the money you’ve worked hard to earn. The greater your net worth, the more financial security you have.
You can find some net worth benchmarks for curiosity’s sake, or to get inspiration. Then focus on yourselves and maximizing your own net worth.
Further reading in the Financial Planning for Couples series:
- Planning your new life financial together
- First things first: Establish a budget
- Dealing with debt
- Managing multiple financial goals
- Buying a home
- Starting a family
- Protecting what you have
- Starting to invest
The best advice for people trying to get their finances in order is not to set up a budget. Most people will come up with unrealistic and unreasonable numbers that won’t work for long. (Plus the word budget just makes people plug their ears!) The most effective method is to track spending. My experience personally and with speaking to others that have done it is that they are spending way more than they think, usually almost double. Not only does the data show you where your money is going, it allows you to make adjustments as necessary and answers the important question of how much you need to achieve financial independence. January is the perfect time to get a start.
Agree 100%. With current technology transactions from bank and credit cards can be easily downloaded and categorized. A simple excel spreadsheet will do. If desired a budget can be built based on three months or so. Takes me 30-45 minutes a month and I know where I have spent money which then allows me to identify what categories I can improve on.