There are two ways to measure your wealth. And, whichever method you use depends on your reasons for doing so. Using investable asset or net worth give the same result but a few things will be different. Although both give you the same outcome, the latter is more familiar and accessible.
What are the Investable assets? All your liquid and near-liquid assets include cash, your money in the bank, retirement savings, stocks, bonds, certificates of deposit, and insurance contracts valued in money.
The assets that cannot be easily converted to cash are excluded from the investable assets. They are known as tangible or physical assets. They include properties in real estate, automobiles, art, jewelry, furniture, and collectibles. Measuring your wealth using investable assets means finding out what you are worth without selling any belongings or properties.
How do you use Investable assets to Calculate Your Wealth?
As discussed earlier, your wealth is what you have without selling anything you own. Using investable assets to measure your worth, you will add all your financial assets, then less your consumer debt, including credit card debts and loans. A mortgage is considered an expense, so you leave it out of this calculation.
Measuring your net worth is similar, but there is a difference in what you include. All of your assets minus your debts equals your net worth. You will use your physical assets’ market value, which you don’t add when calculating investable assets.
Measuring Investable Assets vs. Net Worth
Regardless of your reason to calculate your wealth, you can choose to use the investable assets or net worth. Thus, it is then advisable to keep track of both. For instance, if you are making an investment plan, you should use your investable asset only to measure your wealth.
NOTE: Investable assets directly shows the amount of money at your disposal, which is why they are known as “investable assets”.
Most financial firms, investment advisers, and brokers prefer using investable or financial assets to measure wealth because it clearly shows you the amount to invest. If you apply for a bank loan, they will shift their interest to your financial assets as they show your ability to sustain a new debt.
Comparing net worth and investable assets gives a better view of your financial health. In a nutshell, a sum of all your inevitable assets, selling your tangible assets, and clearing your debts (including your mortgage), then you have the measure of your wealth.
Investable assets are valuable because they give you financial peace of mind. Even with any emergency, your back is always covered, and your family will never lack the necessary living requirements. However, don’t deplete your investment assets, but balance by saving more.
When Do You Measure Wealth?
Your net worth keeps changing depending on the market value of your physical assets changes. Also, it turns out as you pay your debts or acquire new savings. Investable assets don’t change as much as tangible assets since the amount of their worth are not affected by the market value.
Financial advisers suggest that you calculate your wealth using monthly. Keeping abreast of your financial health keeps better track of any progress made. You can do the same and calculate your wealth using the investable asset. The bottom line is whether you decide to use(investable assets or net worth) to calculate your worth annually.
Pro Tips on money management
- You can build investable assets by building an emergency fund that you can use to cover expenses if the need arises. For instance, you can be hospitalized or lose your job or other issues that require financial action. You can use your emergency kitty to cover these expenses without taking a loan or using your credit card.
- If managing your investments is tedious for you, get a financial advisor to simplify your payments. You will understand how you spend your income and give you options to let your money work.
- In case you are wondering where to get a financial advisor to fit your needs, SmartAsset’s free tool will link you to financial advisors in your area fast. You can make use of the tool or consult with your friends or colleagues for help.
Tracking your financial progress will help you achieve your business goals. You can do this by measuring your wealth monthly or annually. Depending on the reasons you have to measure your wealth, you can use investable assets or net worth.
Also, getting a financial advisor to help you understand how to manage your income and savings is vital. Always comparing your financial assets to investable assets tells you all about your financial well-being.
Net worth and investment assets are common ways to measure your wealth. Both provide different information, but you can use one to track your financial progress.
Read More: Investable Assets: All you need to Know