For most people wealth has a direct correlation to their income. Achieving your financial goals and being able to put away money for your family may be more difficult depending upon your situation – but in no case is it impossible. As with tax planning, if you want to build wealth, it is important to evaluate your resources carefully and plan ahead.
Perhaps income alone is not the best way to determine our wealth. Some believe the definition of net worth should be used as a better marker for wealth than income. The sum of a person’s assets minus all debts might give a clearer picture of how much a person is “worth” which can be a different figure indeed – than income alone.
Your net worth
Persons with modest incomes can have a sizable net worth. And people with large incomes can have lavish lifestyles complete with heavy indebtedness, which calculates to very low net worth.
So what makes a person with a net worth of over a million dollars feel wealthy? According to CNBC in 2015, among those who had net assets of a million dollars or more, a staggering 44 percent described themselves as middle class while 40 percent labeled themselves as upper middle class and only 4 percent described themselves as rich while an additional 5 percent called themselves upper class.
Among those with assets of 5 million dollars or more, only 11 percent described themselves as rich or wealthy.
Perhaps the knowledge that we have some assets (whatever the scope) that are tangible along with a feeling of stability or security, knowing that our planning has paid off and that we can afford property, educations for our children and a retirement, are the keys to how “rich” we feel.
If you have never calculated your net worth, there is no better time than right now. Call this a “baseline” against which you can compare all future years to see how your net worth is growing. Add up the value of everything you own. All of your (currently estimated) property, savings, investments and retirement accounts. Now deduct all of your debt, including car payments, mortgages, student loans and miscellaneous debt. This will give you your baseline.
Revisit this exercise annually or more often as you are building for your financial future and your income is growing. Additionally, if you are planning for taxes and watching as federal tax rates are being adjusted, this tool may help you calculate your AGI (adjusted gross income) for the coming year: https://www.e-file.com/faq/calculate-agi.php