A big issue this election campaign period is whether you are better off financially than you were four years ago. Sure, prices are higher, but that is only one part of the equation. Whether you are working and earning more is another part. A different way to look at this is to evaluate how much more you have today than four years ago.
A major way of measuring your net worth – which is what you have in excess of what you owe – is to prepare a balance sheet. Following is a step-by-step method to calculate your personal balance sheet and determine if you are better or worse off now compared to four years ago.
Do the following for right now (or as of the end of last month)
Step One – Add up Your Assets
Make a list of what you have and then add it up. Here are some major components to include:
- Cash in all of your bank accounts.
- Cash under your mattress.
- Investments not in retirement accounts.
- The totals in each of your retirement accounts - include 401k and 403b accounts from your current and previous employers and IRA accounts.
- Vested balances in your employer’s pension plan.
- Balances in any annuities.
- The value of your house - what you think you could sell it for.
- If you own a business, what you think the value is. Either use book value or an estimate of what you think you could sell it for, if it is salable, or what you would get if you liquidated it. If the business has debt, reduce the value by the amount of the debt.
- The value of any vehicles you own.
- The value of any other assets you invested in.
- Any other assets not mentioned above.
Step Two – Calculate Your Liabilities
Make another list of what you owe and then add that up:
- Credit card debt.
- Car debt.
- Mortgage balance.
- Home equity loans.
- Loans from employer or employer’s retirement account.
- Student loans.
- Other debt.
Step Three – Determine Your Net Financial Worth
Subtract the total of what you owe from the total of what you have
- The balance is your net assets - or net debt if a negative result. This is also referred to as your net financial worth.
The above is considered your personal balance sheet.
Step Four – Factor in Inheritance, Gifts and Unusual Items
Here are some more things to do:
- Subtract any amounts you inherited or received as a gift.
- Add back any gifts you made - consider big items, not usual annual gifts.
- Add or subtract any large unusual items.
This balance is your net worth from your assets not considering additions or drops from outside factors.
Step Five – Prepare Your Personal Balance Sheet as of Four Years Ago
Now repeat the process for January 20, 2021 – or December 31, 2020, or January 31, 2021, whichever is easier to do. This was when Donald Trump left the presidency and Joe Biden became president.
Step Six – Calculate the Growth of Drop in Your Net Assets
Compare the totals on your personal balance sheets from now and from 4 years ago. Subtract the amount from four years ago from today’s amount.
The difference is the growth or drop in your net assets over the last four years.
If you want to go back further, repeat the process for January 20, 2017 – or December 31, 2016, or January 31, 2017, whichever is easier to do. This was when Barack Obama left the presidency and Donald Trump became president.
The net totals will show you your net worth at the end of each period. Look at how your net worth grew or declined during the last four or eight years.
Quick Tips
A suggestion is to list the items and have columns for each period next to each other. This will make it easier to compare the items and review the consistency of your estimates and how you feel about each item’s growth or drop.
This is not a scientific project so do not obsess over each item. Try to use reasonable estimates and the same method for all of the periods for which you are preparing the balance sheet. I suggest three periods since it will help you with the estimates and provide perspective on how each item is performing.
Decide for yourself if you are better or worse off than four years ago. If you want to go a little further, review the last eight years, and try to decide how much better off you think you will be going forward if either of the major candidates were elected.
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If you have any tax, business, financial or leadership or management issues you want to discuss please do not hesitate to contact me.
