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You’re (Possibly) Richer Than You Think

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Clearly defining your financial situation might help you face market volatility which can be expected to continue in 2019.

Tag-lines sometimes leap from advertising campaigns to everyday life and turn up in casual conversation.

This happens because they have become instantly recognizable, need little or no amplification and telegraph a clear message.

Slogans like ‘Because I’m worth it …” and “Just do it …” turn up in personal contexts that have little to do with their original product campaigns because they are instantly recognizable, applicable to casual interactions and need little explanation

“You’re richer than you think …” is another prime example. This catchy phrase was launched in 2006 by a well-known bank. It weathered the recession and protests, and was modified in 2017 to reflect issues such as student debt. The bank, however, decided that the original slogan still applied to individuals in their mid-forties and upwards.

Discovering that you might be richer than you think brings re-assurance during volatile stock markets – a condition that, unfortunately, appears set to continue into 2019 since most or all of the causes of this year’s volatility can be expected to affect the markets next year. Combined with the volatility, rising interest rates and therefore the resulting greater cost of debt, adds to the urgency of defining your financial position as clearly as possible.

At the same time, knowing whether you are ‘poorer than you think’ can serve as a wake-up call to reduce debt levels, unnecessary expenses, taking steps to increase income or a combination of these strategies.

In either case, assembling a Statement of your Net Worth will help you to crystallize your position.

Start with the good news: your assets. Then follow with the bad news: your liabilities.

ASSETS

*Investment Portfolio: stocks, bonds, certificates, commodities

*All retirement plans with a cash value

Funds in current bank account

Funds in old bank accounts that you may not have used recently, perhaps near a former employer

*Art

*Collectibles

*Period furniture that has a Cash Value

*Automobile(s)

*Any other assets that have a cash value

**House and other real estate

Potential market value of business

***Outstanding loans you are owed

*For these calculations, use current market value, not the price you paid, and allow for estimated tax liability

**Current market value minus outstanding mortgages

*** Only include this amount if you are truly confident you will get re-payment

Some definitions of Net Worth include anticipated inheritances but I am not in favor of including potential future assets in this calculation.

Related: Living Longer, But Can You Prosper?

Related: Is the Mini-Correction a Preview of What’s to Come?

LIABILITIES

Mortgage debt

Credit card debt

Line(s) of credit owing

Total vehicle payments owing

Loan Guarantees for dependents

Loans you owe

Estimated income tax liability

Subtract the Total Assets from Total Liabilities and the result is your Net Worth.

If your assets are greater than your liabilities, it does not necessarily mean that you can view your financial affairs as being in ideal shape. We would have to drill further down to make sure of that. However, it does mean that you have a positive Net Worth and you can feel some reassurance during this period of tumult in the stock market.

If your liabilities are greater than your assets, you are in negative territory. Consider exploring how you can reduce your liabilities or increase your income, or both.

Either way, your payoff for this exercise is to determine whether you are, indeed, richer than you think or whether you need to\ make some changes. You will have a clear picture of where you stand financially and may feel a little less anxious about the impact of stock market volatility on your investments.

The approaching year-end is a good time to assemble this figure, and use it as an annual comparison.

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