We are used to keeping an eye on our bank balance, but are we looking at the big picture?
If not, you are missing the vital first step to transforming your fortune.
So today, ahead of our ‘How to Get Rich’ series launching this Saturday, we will show you how to create a clear idea of your true wealth.
Our guides will run all next week and explain how you can maximise your future finances.
Take stock: Ahead of our ‘How to Get Rich’ series launching this Saturday, we will show you how to create a clear idea of your true wealth
Household names such as billionaire Sir Richard Branson, Dragons’ Den star Deborah Meaden and TV property guru Phil Spencer will all share their secrets to getting rich.
But before you can start nurturing your wealth, you need to take stock and calculate what you actually have. We explain more on how to do that below.
We turned detective… and found we can retire 5 years early
Calculating their wealth has allowed Siubhan Reid-Litherland and Mark Litherland to bring forward their retirement and plans to travel by five years.
The couple live near Banbury and own a business consultancy, and decided to find out how much they were worth in 2014.
Siubhan, 59, gathered together financial information on their three properties — a studio flat, a two-bed apartment and their four-bed family home — their Self-Invested Personal Pensions and Isas while Mark, 55, set up the spreadsheet which they review and update three times a year.
They used information from online property agent Zoopla to value their properties and updated the value of their investment funds.
Cool and calculating: Mark and Siubhan plan a huge lifestyle change — a cycle trip around Asia
Having the information in one place gave them a much clearer picture of their financial health.
The couple calculated their wealth at just over £1 million. Siubhan says they were pleasantly surprised with the results.
She says: ‘I thought, goodness me that’s nice. We had a sketchy idea of what the properties were worth but we had never added everything up all together. Suddenly, a complete change of lifestyle had become more realistic.’
Before working out what they were worth, the couple thought they would have to carry on working until Mark reached 60.
Now they plan to finish one last project to boost their finances before they set off to cycle around South East Asia next spring. Their total wealth has grown to £1.3 million.
Siubhan says: ‘We wanted to stop working quite so hard and make what we had work hard for us instead. Our family home is on the market right now and we are going full steam ahead.’
Meanwhile, Paul and Fiona Petrucke, from Birmingham, decided to seek advice from an expert when Paul, who has Parkinson’s, needed to find out if he could afford to retire.
Mark and Siubhan calculated their wealth at just over £1 million. Siubhan says they were pleasantly surprised with the results
The couple used an adviser from wealth firm Quilter who started digging into their financial background.
Paul says: ‘When we met Chris our adviser, he gave us a completely different view on our finances.
‘He funnelled together all the different investments we had to get our true wealth. He uncovered pensions and health policies we thought were worthless and found out their value.’
Paul, 59, did not know his company pension had ill-health provisions. After his adviser made inquiries, he was offered the option by the pension scheme to take a lump sum. His teacher wife Fiona, 65, did the same.
They also found a defined benefit pension scheme belonging to Paul worth more than he expected and transferred it to his personal pension.
Paul adds: ‘It is reassuring knowing what money we have and how to access it. We go on four or five holidays a year — and just last week we came back from Japan.’
How to do a wealth check
We all feel rich or poor at some time in our lives, but that may not be a true reflection of our actual financial position.
Checking if your house has gone up or down in value can help, and most people can easily check how much money they have in their current and savings accounts.
However, few households know what their so-called net worth is. Simply put, this is everything you have, minus everything you owe.
As you get older, your finances become more complex.
The lone bank account you had when you first started working has turned into a joint current account, mortgage, savings accounts, credit cards and investment Isa. And as soon as you start changing jobs, you begin leaving behind a trail of small pension pots.
Before you know it, you have lost track of your finances.
Carrying out a wealth assessment forces you to gather together information on your accounts and valuable assets in one place.
By doing so, you can spot any imbalances and use it as yardstick to check your financial plans are on track.
To find what your house is worth, try websites such as Right Move or Mouseprice
Money through the generations
The reasons for calculating your net worth differs from one generation to the next, and each age group faces different challenges.
Millennials may spend all of their 20s and some of their 30s in negative wealth, when their debts outweigh what they have and own.
Generation X and Baby Boomers are more likely to have built up property wealth, inherited family heirlooms and cash lump sums or to have bought a second home.
A wealth check will help this generation find out if they are managing their debts and assets efficiently, or if money could be moved from underperforming accounts or investments to be better used elsewhere.
As Generation X moves closer to retirement, regularly reviewing pensions and investments becomes more important.
Baby Boomers who have already retired will be more concerned about how they can maintain their lifestyle in retirement and reduce their inheritance tax bill on the estate they leave behind. And Millennials are likely to be more focused on how to get on the property ladder.
If you keep track of your net wealth over time it highlights importantly what it is working for you and what isn’t
Sarah Coles, Hargreaves Lansdown
Personal finance analyst Sarah Coles, of investment service Hargreaves Lansdown, says: ‘Not everyone is bursting to tell their friends what their net worth is, but that doesn’t mean this information is not worth knowing.
‘If you keep track of your net wealth over time it highlights importantly what it is working for you and what isn’t allowing you to make adjustments.’
Heather Owen, financial planner at wealth firm Quilter Private Client Advisers, adds: ‘Understanding your monetary position can highlight where you should save more or spend less to reach your financial goals.
‘Doing this early in life can be crucial, particularly for Millennials who might be shocked at how much they need to put away if they are going to be able to get a foot on the housing ladder.’
Here is what you should consider when calculating your wealth…
Dig out your savings and check your investments
Dig out your latest statements for any instant access savings accounts, Isas, premium bonds, fixed term bonds and current accounts.
To cut down on the leg work, you can use apps such as MoneyDashboard or your own bank’s app if they use so-called open banking.
This allows you to link up your accounts in one place so you can see your balances on one screen instead of using several different log-ins.
If you have bought shares directly in a company and hold your own share certificates, find your latest statements to show how many you hold.
Next, check the current share price to find out their value. If you use an investment platform you can easily see an up-to-date valuation of the funds and shares you hold in one place.
Most forms of life insurance, such as those that pay out on death or in the event of ill health, are a form of protection against events rather than an investment so they would not be included in your assessment.
But certain types of life insurance policies, such as with-profit bonds and offshore investment bonds, are investments, so they can be included.
Find out how much your home is worth
Most people will have a rough idea of their property’s value, but you can use a variety of online tools to help you check on sold prices, as well as looking what similar properties are currently for sale for.
To find what your house is worth, try website tools such as Zoopla’s house prices section, Rightmove’s sold prices or Mouseprice.
They will give you an approximate valuation by searching the house price growth in your postcode area and looking for comparable homes that have recently sold.
You will need to take off your mortgage if you have one – more on that and other debts below.
Pensions are likely to be a household’s largest asset after their home. Workplace pensions, however, often get forgotten about after moving jobs
Hunt down ALL your pensions
These are likely to be a household’s largest asset after their home. Workplace pensions, however, often get forgotten about after moving jobs.
If you have old statements, call up your provider to ask for an update on its value. Your pension provider may allow you to view the value of your fund online if you have created an account.
Use the Government’s Pension Tracing Service if you are having trouble finding your savings by calling 0800 731 0193 or using the online form at findpension contacts.service.gov.uk.
You would not include your state pension because it is not a pot of money that belongs to you, it is benefit you are entitled to when you reach state pensionable age.
Get valuations for jewellery
If you have inherited jewellery or have a valuable collection this can be included in your list of assets.
The value of your jewellery and other collectibles will contribute towards your inheritance tax liability after you have passed away so it should be included in any assessment of your wealth.
Jason Hollands, managing director of Tilney Investment Management Services, adds: ‘A diamond engagement ring or luxury watch purchased 15 years ago could now be worth significantly more, but unless you revalue these items periodically, you might discover you are woefully underinsured.’
Cash up your collectibles
High-end classic cars, paintings, antiques and stamps can all go up in value so these should be included in your list of assets.
But don’t forget your debts
Your mortgage and any other loans secured on your home are likely to be your biggest financial commitment.
A statement telling you what you owe is issued annually, but you can call your lender to get a current balance.
All credit card, store card and shopping account balances should be taken into account unless you clear the debt every month.
Overdraft facilities that are not cleared monthly, personal loans, car finance agreements, and loans from friends and family that have to be repaid should be added to your list of debts. Student loans for many Millennials can last their entire working lives. Contact the Student Loans Company for an up-to-date balance.
Now work it all out
To find out how much you are worth, calculate the total value of everything you have and subtract the total value of everything you owe.
The basic way of assessing your wealth is to hunt through paperwork and use a notebook or spreadsheet to write down values — such as the one we have provided on the left.
If you have sufficient wealth to warrant paying an expert, you can ask a financial adviser to do this for you. They can also tell you what you should do to improve your position. Alternatively, you can use an app or an online calculator.
If you are a customer of an investment platform such as BestInvest or AJ Bell you will have access to their wealth calculators, or you can create an account with a personal finance tool such as Moneyhub.
Calculating and tracking how much you are worth can also help you focus on pension saving
Moneyhub can be downloaded as an app to use on your phone or used on a computer or tablet, and costs up to £1.49 a month.
You can upload the details of all your accounts, including your workplace, private and Self Invested Personal Pensions.
If you add in the value of your property you can tell the app to increase its value every year depending on house price growth in your area.
The valuation of any non-financial assets such as paintings or other collectables can be added to your account.
All loan accounts, including your mortgage, can be also be uploaded.
All your account balances and asset values are displayed on one screen and your total wealth is calculated and displayed in the centre of your home page.
What would YOU do with a windfall?
On this episode of the This is Money podcast, Simon Lambert, Lee Boyce and Georgie Frost look at what it means to win big.
They discuss what they do with a £1million Premium Bond prize, or other major windfall, and also look at what might be some of the first things you need to think about if you’re lucky enough to come into some cash?
Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.
How do you compare – and what can you do now?
In 2017, the average net worth in the UK was £155,000, according to Government figures. But depending on your stage of life, this figure is likely to vary widely, and Millennials with student debt, for example, will probably be in negative wealth for a large portion of their 20s and 30s.
Their assessment will highlight any imbalances in their finances, such as surplus cash savings in a low-interest bearing account alongside other expensive debt.
Laura Suter, personal finance analyst at AJ Bell, says graduates should focus on paying off high cost credit or personal loans and starting to save, before worrying about repaying student debt, which is wiped out after 30 years.
She says: ‘Even though it can feel like you are swimming against the tide at this time of life, any money you can put away when you are young will pay off massively in later years.’ By saving for long periods, you benefit from so-called compounding.
This is where interest is not only calculated on your initial savings balance or investment but also on previous interest and investment returns added to your fund.
Calculating and tracking how much you are worth can also help you focus on pension saving.
By attaching your pension pots to your spreadsheet or app and tracking them, paying into your pension can feel less like a tax and more like savings as you watch your personal and employer contributions mount up every month. Knowing how much you are worth can help you check your financial help and plan for the future.
The finances of a Generation X household may be still be recovering from costly parenting years but they want to know their prospects for early retirement.
Ms Suter says: ‘Generation X are still likely to face high outgoings, between paying for any children, paying for education for them and paying off mortgage debt.
‘At this point of life they should pay attention to boosting pension contributions to counteract any leaner years they may have had — particularly anyone who has taken a career break. It’s also a good idea to build on your investments and savings pot, using any Isa allowances you can.’
On reaching your retirement, at last, what you own is likely to be more than what you owe.
If you carry out your wealth check early enough, cash, property wealth or other taxable assets can be gifted to relatives to reduce your inheritance tax liability when you die.
You may also want to consolidate your pensions in one place so you can see what you have, how it’s invested to make sure you are earning the best return.
Provisions for long-term care may also be a consideration of your wealth plan.
How your date of birth may be the difference between rich and poor
- Born between 1946 and 1965, married in your 20s and a homeowner by 25. Mortgage free in your 50s, with the help of an inheritance.
- Enjoyed house price inflation of more than 250 per cent over the past 30 years.
- Endured double-digit inflation in the Seventies and early Eighties.
- Rebuilt your savings when your children flew the nest after university.
- Built up a generous so-called defined benefit workplace pension, guaranteeing a fixed income for life.
- Plan to maintain lifestyle, travel and help out children and grandchildren in retirement.
- Facing the prospect of paying for long-term care.
- Born between 1966 and 1980, married in your mid-20s, a homeowner just before you turned 30.
- Mortgage-free not long before retirement.
- Cashed in on the property boom but the financial crisis and recession damaged equity built up in your home. Contributing to a workplace pension but the cost of raising a family has made saving difficult.
- Credit cards and overdrafts help to make ends meet.
- Plan to work later in life and inherit money in your late 50s to fund your retirement.
- Struggling to financially look after both children and parents.
- Born from 1981 to 2000, highly educated, but student debt hampers your ability to save.
- A homeowner in your early 30s, it costs you more than five times your salary to buy a house.
- Likely to be self-employed or have a zero-hours contract so your income, although substantial, is unstable.
- Parents will pass down property wealth — but probably not until you have retired.
- Buying a house is your biggest financial concern.
- Budgeting and savings apps help you set money aside for a deposit.
- Building up your pension is important but you are not sure how best to save for retirement.