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People have far-reaching views on what it means to be “high net worth”, according to a study by digital wealth manager Personal Capital.
Yet most people – 74% – never see that they fit into that category.
When 2,209 adults were asked what they would consider high net worth, the median average of all responses was $ 400,000.
Meanwhile, 32% of respondents agree with the widely accepted definition of individual high net worth as having $ 1 million or more in investable assets.
Only 23% of respondents in the survey believe that they will ever achieve high net worth status.
Only 35% of people are sure they know what net worth means, even though 91% say they have heard of it.
Knowing your net worth is the first step to getting a good financial plan in place that will help you achieve your financial goals, said Michelle Brownstein, a Certified Financial Planner and Vice President of Private Client Group at Personal Capital in San Francisco.
“Having a good bird’s eye view of your financial situation is such an important exercise,” Brownstein said.
“There is no time like now to sit down and say, ‘Where am I?'” She added.
How to calculate your net worth
To determine your personal net worth, start by adding all your assets – checking and savings accounts, 401 (k) and other retirement savings, other investments and the value of your home.
Then deduct all your debt, including credit card balances, student loans, and mortgages.
The result is your personal net worth.
If your net worth is negative, it means you have more debt than assets. In that case, you should prioritize paying high interest rates first, Brownstein said.
If your net worth is positive but lower than where you want it to be, you can identify goals that can help you improve it, e.g. by building an emergency fund or saving up for retirement or buying a house.
Even small tweaks, like cutting back on daily expenses by eating instead of eating out, can add up to big savings over time, Brownstein said.
What’s more, by prioritizing your goals, you may be able to put yourself on track to reach them faster, such as retiring earlier than you expected, she said.
Pension accounts represent 55% of the wealth of people with high net worth, according to personal capital data.
The study was conducted in March by Morning Consult on behalf of Personal Capital.
Correction: Michelle Brownstein is Vice President of Private Client Group at Personal Capital San Francisco. An earlier version erred her title.