Having a negative net worth can be a downer. Especially when you're just starting out as a couple, burdened with a hefty mortgage or other debts, and your savings account looks a bit sparse. But that's pretty common, so don't panic just yet.
Or you're cool with where you're at the moment, and you only need an effective plan to grow your finances over time. In any case, monitoring your net worth as a couple is crucial to staying afloat financially.
Net worth, in simple terms, is the difference between what you own (assets) and what you owe (liabilities). It plays a crucial role in helping you gauge your financial standing at a glance.
This guide will walk you through how to understand, monitor, and ultimately improve your combined net worth as a couple.
Why Should You Care About Net Worth?
Firstly, it is crucial to understand why net worth matters. Just like regular health checkups are critical for maintaining our physical well-being, your net worth is a health check for your financial accounts. It paints a picture of your financial strength, allowing you to make the necessary adjustments.
For couples, keeping an eye on net worth is crucial because your decisions often tie together combined debts and assets. It's worthwhile even for those earning less, as it gives helpful insights.
Remember that more money doesn't necessarily imply a high net worth. For instance, a high earner could actually have less net worth due to higher expenses, large debts, or poor saving habits.
Tracking your net worth can show how close you are to your financial goals as a couple. It provides insights into your spending habits and savings patterns and lets you keep an eye on your income streams compared to your expenses. This ensures you and your partner are in sync about your financial planning.
Understanding the National Average and Median Net Worth
As a baseline, it helps to know where your net worth stands relative to national trends. The Federal Reserve's Consumer Finance Survey reveals that in 2022, the average American household's net worth, adjusted for inflation, was $1.06 million. But this figure might be misleading due to the wealth of the top 10% earners, skewing the average.
To get a more representative figure, we look at the median net worth, which stands at $192,900. That's a substantial 37% inflation-adjusted increase from three years prior. The top ten percent of earners have an average net worth of $6.63 million. Contrarily, those in the bottom 10% have an average net worth of only $5,300.
These averages vary significantly across different age groups and demographics. For instance, holders of a four-year degree have a median net worth over four times that of a person with only a high school diploma.
Contrary to what these figures suggest, wealth is not evenly distributed. The wealthiest ten percent of households control 76% of the U.S. capital, while the bottom 50% possess only one percent. Hence, financial success is less about meeting or exceeding these statistics than building wealth and securing your future.
How to Track Your Combined Net Worth: A Step-by-Step Guide
Now that you understand why net worth matters and what the national figures look like, here's a simple step-by-step guide on how you can start tracking your combined net worth as a couple.
Recognize Your Assets and Liabilities
Begin by listing all your financial accounts, including bank accounts, retirement accounts, and investment portfolios. Remember to include liabilities such as mortgages, car loans, and credit card debt.
Calculate Your Net Worth
Once you have all your financial accounts listed, subtract your total liabilities from your total assets for a comprehensive view of your financial health. Tools like Monarch Money can simplify this process by providing a clear and compact view of all your financial transactions.
Monitor your Progress
Keep track of how your net worth changes over time. Are you becoming more financially secure, or are debts piling up? What about your cash flow? Understanding the trend can help you adjust your financial plans accordingly.
Set Financial Goals Together
Dancing around delicate money matters can lead to stress in a relationship. Establish your financial priorities, like retiring debt-free or saving for a child's education, to ensure you're both on the same page.
Next, we'll delve deeper into the factors that influence net worth and how to enhance your combined net worth over time.
Key Factors Influencing Your Net Worth
With the steps in place to track your combined net worth, it's equally important to understand the factors that can influence it. Here are some key factors that really matter:
Income and Savings
More disposable household income means more savings, faster debt pay-off, and investment in assets that grow over time, leading to net worth growth.
Debt
How much debt you have plays a significant role in your total wealth. The more debt you carry, the lower your net worth will be. Prioritizing debt reduction, particularly high-interest debt, can significantly increase your net worth.
Investments
An effective investment strategy can significantly boost your net worth. Whether it's the stock market, property, bonds, or mutual funds, astute investments can enable you to increase your assets and make more money over time.
Lifestyle
The most controllable variable is your lifestyle. Excessive spending, a costly lifestyle, or failure to budget can quickly deplete your net worth, even if you earn a high income. Being frugal and savvy about spending can help you build wealth.
Strategies to Boost Your Net Worth as a Couple
Now that you've understood net worth tracking and what affects your net worth, let's discuss actionable strategies to improve it.
Focus on Reducing Debt
Aggressive debt reduction can greatly enhance net worth. Prioritize paying off high-interest debts like credit cards or personal loans and medical bills first.
Save Money and Invest Wisely
Saving and smart investing are crucial steps to building wealth. Studies show that as you age, your net worth usually increases. This is partly due to the power of compound interest. Diversify your investments to minimize risk and boost your returns.
Boost Your Earnings
Consider ways to increase your income, whether through requesting a raise at work, taking on part-time jobs, or even starting a side hustle. The extra money earned can contribute significantly to your savings or reduce your debt.
Be Frugal
Adopting a cost-efficient lifestyle does not imply letting go of everything you love; instead, it focuses on efficient spending habits. This can have a tremendous impact on your net worth. Prioritize your spending in line with your financial goals.
Be consistent when tracking your joint net worth. This routine practice promotes your collective financial progress over time and safeguards your financial health in your relationship.
To keep track of your progress, use reliable tools like Monarch Money, which allows you to monitor your spending and savings. Additionally, align your financial goals with your partner and implement the suggested tips for consistent growth.
Why Start Now?
Understanding and actively tracking net worth can be a game-changer for couples aiming for financial stability. It can streamline your financial management processes and also assist in making informed financial decisions. It also encourages couples to envision their financial goals together.
It's perfectly okay if your net worth doesn't align with the national average or median right now. Keep in mind that the journey of personal finance is unique for everyone. What matters is that you're progressing towards achieving your shared financial goals.
With this guide, you can track and grow your combined net worth effectively. So, why wait? Begin your financial health check today and make strides towards a secure and prosperous future as a couple. Remember, financial success lies in your hands.
Final Thoughts
Financial independence and security involve proactive monitoring and wise decisions about income, savings, investments, and expenses. Tracking your net worth, understanding what influences it, and employing strategies to improve it pave the way to financial success.
Financial planning may seem daunting initially, but taking one step at a time can make a big difference. Remember, active collaboration and communication with your partner are essential. You are on a unique journey to financial success, and as long as you are making consistent progress toward your goals, you are on the right track.
