Using Investable or Financial Assets to Measure Wealth

Using Investable or Financial Assets to Measure WealthUsing Investable or Financial Assets to Measure WealthIt is possible to measure your wealth using investable or financial assets instead of employing the popular, and possibly mora familiar, net worth calculation. Which one you use depends on your situation and why you need to measure your wealth. Investable assets include cash, funds in your bank accounts, money held in retirement accounts, mutual funds, stocks, bonds, certificates of deposit, and insurance contracts with cash value. Excluded from investable assets are those not easily converted to cash, also known as physical or tangible assets. They include items like real estate properties, automobiles, art, jewelry, furniture, and collectibles. In short, measuring your worth in investable assets tells you how much money you have if you dont sell yourbelongings or properties. Calculating Your Wealth To measure your wealth using investable assets, you must add all of your f inancial assets up and subtract all of your consumer debt, which includes all of your credit card debt and loans. If you have a mortgage, then youd typically leave that out of this calculation because its considered an expense. The process you use to measure net worth is similar, but what you include in that measurement differs. You can measure your net worth by subtracting all of your debts from all of your assets- including the market value of physical assets, which you dont count when calculating investable assets. Measuring Investable Assets vs. Net Worth Whether you calculate your wealth using net worth or investable assets depends on the reason youre calculating your wealth- and it may be a good idea to keep track of both numbers regardless. If youre putting together an investment plan or figuring out how much money youd like to put toward investments, then you should measure your wealth by looking at investable assets only. Thats because the amount more accurately reflect s what you actually have at your disposal to invest- hence the term investable assets. Many financial services firms, including investment advisers and brokerages, prefer to use investable or financial assets to measure wealth instead of net worth because it gives a clear picture of what you have to work with when it comes time to make investment decisions. Banks and other lenders may be more interested in financial assets as well, because they may better reflect your ability to take on new debt. In comparison, net worth typically offers a better view of your overall financial health. It is essentially what you would have remaining if you were to add up all of your investable assets and sell all of your physical or tangible assets, then pay off all of your debts, including your mortgage, if you have one. How Often Should You Measure Your Wealth? The amount of your net worth can change easily, as the market value of your physical or tangible assets changes, and as you pay down yo ur debt or acquire savings. Your investable assets will change as well, but not as much as your net worth, since the sum of your investable assets will not be affected by the market value of your physical assets. Many experts suggest calculating your wealth through your net worth on a monthly basis to have the most accurate picture of your financial health and to better track any progress made in this area. The same could apply to how often you calculate your wealth through investable assets. At the very least, you should calculate your worth, either through investable assets or net worth, each year.