What is your Net Worth?

There comes a point in many people's lives when they want to find out what they are worth.  This is much more difficult to quantify on a metaphysical level; however on a tangible level most people can figure out how much wealth they have created over time.  The definition of net worth is simply the total of all your assets (what you own) less your liabilities (what you owe).

According to a report from Environics Analytics, the average Canadian household net worth in 2018 was $678,792 the breakdown of which is represented in the table below:

The breakdown somewhat predictably demonstrates that the largest component of net worth, on average, are real estate holdings and while mortgages are the largest component of debt they only represent about 26% of the value of the real estate. They are however the most significant component of debt. It is also interesting that Canadians have, on average, about $280k in liquid assets comprising savings accounts and investments, which are important when considering retirement or when you require funds in an urgent situation.

When reviewing your net worth breakdown, it is important to keep in mind that these numbers are skewed by prices of homes in Toronto and Vancouver, which represent the largest components of net worth. This can be seen in the provincial breakdown below:

The average real estate holdings in BC are $640k compared with $482k for Ontario and just $162k for New Brunswick. Since this is the largest component of net worth, it is important to keep in mind when assessing one’s own situation. It is perhaps more useful to review the components of net worth to arrive at a more effective comparison.

Building a statement of net worth (or personal financial statement) is fairly straightforward.  It mostly involves creating a list of all your 1) assets including real estate, cash, investments, household items etc. and 2) debts (liabilities) including mortgages payable, credit card debt etc. and assigning a value to them.  In many cases the value can be readily ascertained from a statement or documentation.  However for some categories it is necessary to estimate  eg. car, stamp collection, real estate .  In cases where an estimate is necessary,  the best approach is to use net realizable value which is what you can get if you sold it today.  For example you may have paid $25,000 for your car 6 months ago, you may only be able to sell it for $15,000 today.

The largest component of net worth for most people, as reflected above, is property.  This is usually your principal residence and can also include a family cottage or rental property.  By the same token the largest liability are usually mortgages or loans payable that relate to property ownership.  When assigning a value to your property for the purposes of determining net worth, you can use 1) the amount per your property tax assessments or 2)the cost of the property (how much you paid for it plus additional cost like welcome tax and notary fees that were incurred at the time of purchase) or 3) the price of comparable properties in the area which you can obtain from a real estate agent or review broker listings (note that the sale price is often different from the listing pricing).  When using current market value it is always good to discount it a bit for potential repairs or a sluggish market. Also, closing expenses including commissions paid to a real estate broker or notary fees should be estimated and deducted.

Below you will find a schedule template that helps tracks net worth on a specified date. Additional columns can be added for each period end that is being tracked  Most of the major asset and liability categories are reflected and others can be added (as long as the formula is appropriately updated). 

Net Worth Template (excel)

Keeping track of your net worth on an ongoing basis is an excellent way to see where you are at in terms of meeting your retirement goals, to ensure that you are saving more than you are spending, to determine if your portfolio needs rebalancing or if you just want to track your financial progress over time