Last week, the Federal Reserve released its regular Flow of Funds report. This most recent report indicates that household wealth grew in the 3rd quarter of 2010. The news comes as continued concerns about the economy plague some. Of course, most of this growth did not come from home values; home prices are still fairly low. Instead, the overall growth in household net worth came in the form of stock market gains. Household investment accounts saw gains in Quarter 3 as the stock market showed some recovery. With corporate shares and mutual funds gaining, retirement accounts are being replenished, and that is helping boost household net worth.
Also helping family balance sheets, reports a CNN Money story reporting on the Flow of Funds report, was a drop in liabilities. Americans are paying down some of their debt — and being careful not to rack up more of it for now. While this is good for family finances, it might not do much to help the ailing economic recovery in a dramatic fashion. At any rate, for families around the country, this is good news: An increase in household net worth indicates that some families are getting their finances back on track after the recession.
Figuring Your Net Worth
You can figure out your net worth to get an idea of where you are at in terms of household wealth. It is a fairly straightforward process. First you add up all of your assets. These can include:
- Market value of your house.
- Amount of money in your checking and savings accounts right now.
- Amount of money in all other deposit accounts.
- Value of retirement accounts and other investment accounts.
- Value of certain valuable items like jewelry and artwork.
After you have added up the value of all of your assets, you subtract your liabilities. Liabilities include:
- Amount you still owe on your home.
- Total amount of other debt, including credit card balances, car loans, student loans and other debts.
- Outstanding bills that you owe (such as medical bills).
The resulting number, after your liabilities have been subtracted from your assets, is your net worth. Your net worth provides you with a snap shot of your current financial situation. Since you don’t include your income and your monthly expenses, it doesn’t really tell you about your cash flow situation. But it can provide you with a useful reference for where you are at this moment — and it offers a way for you to mark your progress in terms of finances. It can help to figure your net worth every month, or at least every quarter, just to get an idea of where you are at, and whether you are moving forward.