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Determining Your Net Worth (With Some Help from BBQed Chicken)


Over the weekend, I made BBQ pulled chicken with white BBQ sauce. I had never made pulled chicken before, and I had never even heard of white BBQ sauce before coming across this recipe online last week. 

Now, let me preface this by saying that I am not a chef. No, seriously. But my wife bought me a Trager smoker recently, and I’ve been enjoying playing with it. 

Anyway, because this endeavor was far outside of my comfort zone, I spent more time than usual in the prepping stage. 

Whipping out the list of ingredients, I started to pull the items we have from our pantry to make sure I had everything I needed. As I started checking off the ingredients one by one, I was actually surprised to find how many of the items could actually be found in our kitchen: Cayenne pepper (when have we ever used this?), mayonnaise (which I actually detest, but can be good with the right spices added), and kosher salt.

Of course, I knew we had the main staples like olive oil, black pepper, white pepper, and red pepper (yes, we like pepper). However, we were missing a lemon, apple cider vinegar, and of course, the chickens.

As silly as this might sound, I found myself equating my cooking experience to many of the clients I work with. Everyone goes through this, so you might find it relatable, but the story goes like this: A client comes in, we start to talk things out, and they are usually working toward a significant life change, looking for clarity and control in their finances so they can ultimately live out their intentions. 

Now, other than discussing my intentions of cooking very delicious white BBQ pulled chicken (you can find the recipe here by the way), today I want to focus on one part of the prep stages in financial planning that is the most overlooked: understanding our resources and determining your net worth. 

Considering our finances, we need to do much of the same thing I did with that list of ingredients: take inventory of what we have. The technical term for this list is your Balance Sheet or Net Worth Statement.

It’s called this because we make two lists, one of everything you own and the another of everything you owe. We then add up both sides to see how much more we own than we owe. Now, when we add what we owe to the net figure, we get our net worth. Simply put, this is the difference between what we own and what we owe.

Listing Your Assets

When listing your assets, it’s helpful to put them in a specific order. I like to list them per their availability.

  • Bank Accounts– These are the accounts where we keep funds available for everyday needs – usually checking and savings. 
  • Taxable Investment Accounts – Also called brokerage accounts, these may include any money we’ve invested outside of our retirement plans, annuities, life insurance, or other vehicles that prohibit access.
  • Retirement Accounts – These are 401ks, IRAs, 403(b)s and other alphabet accounts that are typically tied to an employer and include money that you haven’t paid any tax on yet (unless they are Roth accounts).
  • Deferred Compensation– These are special accounts offered by some employers that include salary or bonus funds that you won’t receive for some number of years in the future. These are not actually “accounts” in the traditional sense, but they are the amounts an employer still owes you for work previously done.
  • Stock Awards– These are the RSUs and stock options that an employer has given you. For the portion of these awards that are not vested, it is good to list them with a 0 value, because we don’t yet actually own anything of value.
  • Home and Other Properties– Let’s not forget one of our most valuable items, our home. We include the full value of our home under “what we own,” and we will put our mortgage on the “what we owe” side.

We do not include anything that is a consumable, meaning anything that we couldn’t or wouldn’t convert to cash even if needed. For the most part, we leave out our furniture, jewelry, and cars as these items should not be seen as a source of wealth to support our financial plans.

Listing Your Liabilities

Liability is just a fancy word for things we owe. It’s important to get these down on paper so we can easily compare them to what we have. Often, this simple act allows us to match an asset to a liability and pay it off immediately, saving future interest. However, a more important reason we do this is to help understand how we plan to pay off these debts in the future.

  • Credit Cards– Hopefully, you are paying off your credit cards each month. However, even if you are, you will always have some balance on one of your cards on any given day.
  • Mortgages and HELOCs– Your mortgage is likely your most substantial debt, and any home equity lines of credit balances should also be listed here. You may want to note the limit on your HELOC but be careful not to include that number as the amount you owe.
  • Personal Debt– Include any further debts you owe. For example, if you’ve borrowed money from family members in the past that you mean to pay back. You may also include any funds you plan to give away, but only if this is a true commitment you’ve made. Don’t put expected charitable contributions here.

This is a much shorter list and should always add up too much less than your asset list. You may be thinking about adding in your “future hoped-for spending items,” like paying for your child’s wedding or helping them buy their first home. Don’t do that here. Those expenses will go into your long-term spending plan, which we will address in another post soon. 

Calculating Your Net Worth

Ok, “calculating” may be too strong of a word. All we are going to do is subtract our liabilities from our assets. That’s it! That number is your Net Worth.

This dollar figure is what you would be left with if you sold everything and paid off your debts. Well, not exactly, because you’ll likely owe taxes if you need to access your retirement plans, for example, but it’s a close estimate.

This figure is helpful to have; however, it’s not very useful by itself because we would never actually sell everything and pay off our debts. That only happens after we pass away and, thankfully, our estate plan’s trustee has to take care of that!

What Gets in the Way?

Your Net Worth Statement is only a small piece of an overall financial plan.  It has some flaws in how it is constructed (that can’t be fixed with any confidence) and, by itself, it tells us only a sliver of your financial story.

  • As mentioned above, some of the figures listed are before tax. Those accounts that are tax-deferred mean that we must pay tax when we pull money from them. So, having $1 million in a 401k may only be worth $600,000-$800,000 depending on how and when we access it. 
  • While the equity in your home can be used to support you for the rest of your financial life, we would never liquidate our house entirely. We will always need a place to live, right?!
  • Some of our assets are earmarked for future expenses, but those future expenses need to remain in the future. For example, if you’re saving up for a second home, that will be listed on your balance sheet as cash, even though it is not available to use against your current liabilities.
  • Our investment accounts (taxable and retirement) move with the markets, so their value can change significantly from month to month and sometimes from day-to-day. But this report is a single day’s snapshot and can vary greatly depending on the day it is calculated.
  • This statement doesn’t consider the timing of debts owed, meaning it may not be possible to pre-pay one of the debts listed and therefore, it will grow with interest charged.

Even with the above flaws, listing out our assets and liabilities gives us a good sense of where we are today.

Here’s the Good News

  1. Our assets and liabilities don’t have to be perfectly matched today (or any day). Think about how your life has changed over the past ten years. Would knowing your net worth ten years ago have told you anything about where you would be today? Likely not. This is because:
    • Our goals can change over time
    • Our desire to work may change over time
    • We might move up fast, bringing in more income than we expected
    • Things we think we want to buy in the future may not look so attractive when we get there
  2. In addition, those taxes we will owe on retirement accounts can be minimized considering our needs to use that cash.By creating a withdrawal strategy that addresses our cash outflows and considers the tax code, we can meet our spending needs without sending any “extra” money to the IRS.
  3. We don’t ever have to pay off all of our liabilities.It is helpful to have a goal for what you will leave your heirs, and most people want, primarily, to “go out even.” However, you will likely own your home when you pass and having an associated mortgage could still leave a large inheritance to pass on.

I might have hinted to this above, but just to confirm, the chickens turned out moist and delicious. And while I would like to say that is due to my skills (just kidding, I’m no chef, remember?), this was primarily due to all the steps taken after gathering the ingredients. 

By creating your net worth statement, you have simply pulled together today’s ingredients. For your financial life to turn out as moist and juicy as this chicken, there are many more steps ahead. So, stay tuned! :D

Now that you understand how to view what you currently own and what you currently owe, you can better understand what might be possible for you, financially, in the future.

Our next post will focus on another vital part of your resource: your income.

If you have any questions about this article, please email me at joe@jwmwealth.com. I look forward to hearing from you!