The importance of understanding how much you are really worth

Tuesday, 16 December 2025

Adding up your net worth will give you your true measure of wealth, but you need to approach it in a disciplined way, writes Martin Hawes.

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books including his latest, the bestselling Retirement Ready. He writes a weekly column.

OPINION: There was a time when every year I would calculate my net worth. I would do this on New Year’s Day and compare the new figure to the old one to see whether I was making progress or going backwards.

It was always an interesting exercise — the idea of net worth is simple enough (what you own less what you owe) — but it is probably the most important number in personal finance.

Net worth is the true measure of wealth. Wealth is capital; it is not your income. People with high incomes sometimes masquerade as wealthy (nice house, flash car, etc), but when you dig into it they own very little and often owe quite a lot.

High income can become net worth, but only if some income is saved. To have financial freedom you need wealth. When you stop or slow down work, it is this wealth that will give you income.

Measuring net worth is usually done to see how well you are advancing towards some goal (often some form of retirement). It is important that you include the right things when measuring your net worth: on the whole, include assets (what you own) that are saleable and/or going to be used when you hit retirement.

The family home is usually the first of your assets to be counted in any assessment of your net worth.

The house is usually first to be counted, being the biggest asset for most Kiwis. Most of us know the approximate value of our house. Although there is often a bias towards overvaluation, we usually know our rateable value and what the neighbours got when they sold last month.

Beyond the house are investments of all types, including any business that you might own. These investments include KiwiSaver and other things that can be sold or cashed in and are easily valued (shares, bonds, cash, rental property, managed funds, syndicates, cryptocurrency, etc).

The family business should be included if it is saleable — many family businesses are unsaleable and are effectively self-employment. My own small business is like this; it has no value to anyone else and so has never been included in my net worth calculations.

I do not include things like cars, furniture, household appliances, etc. You are always going to want and need these kinds of things and, with the possible exception of the car, they have minimal resale value.

There may be other things that you might include, but only if you would be happy to sell them. I would generally not include art, antiques, jewellery and family heirlooms (they may never be sold).

Your net worth assessment will reflect how well investments have - or haven’t - performed since you last did the exercise.

Care is needed when valuing any of your assets. I have always been on the conservative side when valuing items like the house and a business. Remember also that there would probably be disposal costs (real estate agents, lawyers, etc).

Perhaps the most important thing in striking a value is that you are consistent — you do need to know whether you are improving your net worth or going backwards. Sometimes your net worth will be less because markets (financial or property) are down. You should put in the value at the current time.

What you owe (your liabilities) needs to be deducted from your assets. This is usually an easy thing to do — most of us know what we owe. I would not usually include credit card debt, provided it is just part of the usual monthly spend; however, if it is entrenched debt, then it needs to be included along with the mortgage, hire purchase, family loans, etc.

I still measure my net worth — in fact, I do it more often than I used to. This is partly because it is so much simpler to do (I have fewer things), but also because it is more important. I am now drawing on my investments for income, and that usually means spending both the returns from investments and eating into the capital a little as well.

Regular measurement becomes more important as you are on a downward glide path and do not want to smack into the ground. I have started to draw on my portfolio as I work less. Less work has to be made up from somewhere: I take a fortnightly amount from the portfolio. My portfolios (and therefore my net worth) are now a little lower, which is partly because markets have fallen and partly because I am drawing from the portfolio.

I am fairly relaxed on both scores because my drawdown rate (like most published drawdown rates) assumes that there will be volatility. Nevertheless, this is something that those in retirement need to monitor. Net worth will drop, but hopefully it will be a well-planned and carefully controlled drop.

Martin Hawes is not a financial adviser and the information and opinions here should not be taken as financial advice.