Start Where You Are: Your Money in 2022

Most of us start a New Year with resolutions: lose weight, exercise more, get organized financially. According to credit bureau Experian, almost 50% of Americans want to save more in the next year – even though for many personal savings soared since Covid-19 hit the US in March 2020. Among New Year goals, more than a third want a budget, and another 25% of so have various resolutions around credit and debt. You probably have a  money-related goal, too, and this post will help you keep it.

How do you organize your current financial picture? Where do you even start? And how do you know when you’re making progress?

First off, let’s ease up a bit and rename “resolutions” as “intentions.” As we start 2022 we also start our third year of the pandemic (a phrase I cannot believe I am writing). Just take some of the pressure off so you can keep going when invariably there will be some twist during the year that will screw up the best-laid plans.

Now, with the intention of improving money matters in your life, your first step is to figure out where you are starting. You don’t have to change anything you’re doing at this point: you’re just going to add up what you have going on. This means calculating your Financial Net Worth.

Financial planning usually starts with an inventory of financial assets and liabilities. Note that this is not the time to evaluate past actions or missteps. It’s also not the time to swear to adopt new habits or change behavior. We’re going to do some emotion-free arithmetic. Hop on your computer or grab your box of account statements, and just get started. No judgment.

Our Net Worth math problem consists of adding what you OWN and subtracting out what you OWE.

An asset is something you OWN. A checking account. A 401k. Stocks. Bonds. A house.
A liability is something you OWE. Your credit card balance. Student loans. A mortgage.

Bringing these two categories together, Assets – Liabilities, gives us your Financial Net Worth.

You likely have some saving strategies in place: what goes to your 401k or 403b, or what accumulates in your checking. You may have “lumpy” savings, like a bonus or tax refund, maybe periodic vesting of equity compensation. If you signed up for an HSA or an automated savings program like Acorns or Betterment, you might have some dough squirreled away there; make sure you are adding these accounts, too. Don’t ignore anything just because you think it’s small and doesn’t matter.

Your savings is accumulating, adding to your resources, building assets. Some of your spending may be to pay down debts: student loans, car loans, mortgages. The balances you owe from borrowing are financial liabilities and payments on these debts increase your Net Worth since they reduce your liabilities.

Checking                       $ 5,000
401k                              15,000
Student Loans               $10,000



INSURANCE — Sometimes I see a value listed for insurance on a client’s inventory of assets. Then I ask questions about what kind of insurance it is. More often that not, it’s the death benefit of a term insurance policy. Typically the insurance you get through your employer, for example, is term life insurance – “pure” insurance that provides money to you only if you die (the death benefit) during a specified period of time. Term insurance has no asset value in itself to include as part of your Net Worth (but if you have dependents, no question having coverage has value – just don’t add this to your Inventory).

If you have a form of permanent coverage (permanent life insurance – aka “whole life” or “universal life” policies), in time you will see a savings component that is an asset to include on your list. For this type of coverage, you’re looking for the cash value of the policy. Add that to your list.

ANNUITIES – Annuities are savings vehicles structured similar to permanent insurance, and it’s the cash value you want to include with your Assets.

With both permanent insurance and annuities, you might also see a surrender value figure. The surrender value is the cash value less charges for terminating the contract before a certain period. Use the cash value for your Net Worth, unless you are planning on cashing it out now.

COMPANY STOCK OR OPTIONS – You may have assets tied to your company stock, such as restricted stock awards and stock options. The value that tends to get reported on the statement your company or its stock plan administrator sends out is usually not the one you want for your inventory. The eye-popping numbers reported there are usually the value of all your equity comp – vested and unvested. If you walk away from your job tomorrow, you’re not taking that unvested stock with you. We are only counting the birds you have in your hand, so you leave out the unvested stock or options (unvested = not yet owned). By all means, add an asterisk that says in addition to the $25,000 you have in vested stock, you have another $250,000 in unvested stock so that we don’t forget about it. But it’s not yours yet, so it stays off the list.

CARS, JEWELRY AND OTHER PERSONAL USE ITEMS – The surprise that sometimes comes with Big Ticket purchases like cars and diamonds is that what you paid from them isn’t what the rest of the world will pay you for them. Our current predicament with supply chains, microchips and other constraints creating potential windfalls for selling used cars notwithstanding, in general cars and other personal use items face a hefty discount if you’re wanting to sell them.

That engagement ring I was given many years ago is still made of pricey diamonds and sapphires, but when I recently had it valued by an appraiser for sale, after the appraiser’s selling costs and profit-taking they offered about one-third of the original cost. (Appraisals for insurance purposes will often give you a different – higher — number than appraisals for resale.) Clothes – even well-known designer items face a big discount when liquidated. Just go to the RealReal, Vestiarie Collective or eBay and check out the discount on designer resale goods – great if you’re buying, not so if you’re wanting to recoup your spend.

For these items, include them on your list of possessions for insurance purposes and the like, but leave them off your inventory for Net Worth.

TO DO: Gather the info you’re going to need to put your Net Worth statement together:
• Checking & savings account statements
• Retirement account statements (401k, 403b, 457, IRAs)
• Statements or other information on the value of other assets (house if you own, rental property, stock options, stock grants)
• Statements for anything you owe (mortgage, auto loan, student loans, 401k loans, BNPL (Buy Now Pay Later) purchases)

TIP: If you don’t have a system for organizing this information regularly, get one.

 If you are paper-free, create a computer or email folder in which to collect your statements
 If you are receiving paper statements, same idea: label a folder or box “Finances” and toss all your statements into it
 If you use a combination, just make sure you’re bringing the two piles of information together

Whether tracking this information by hand in a spreadsheet or chart, or using a tool like Mint or Personal Capital, you need to devise a method that’s easy for you to use, so that you can build the routine of checking in on your financial picture.

So that’s it for now.

You have your Financial Net Worth figured out. It’s a snapshot of where you are financially today, and it will be a benchmark for you to review next year. Over time, you’ll save, you’ll borrow, you’ll pay off some debt, and then you can calculate this number again. Growing this number is how you build wealth.

If you’re just starting out, recognize that this is the hardest part: You may have liabilities greater than your assets, especially if you’re just out of school and have substantial education loans, resulting in negative Financial Net Worth.

Your Financial Net Worth isn’t YOUR net worth.

When you think about financial planning or wealth management, it’s natural to think about your portfolio, your collection of financial accounts. That’s certainly part of it. But you are MORE than your portfolio, and your assets include more than just the financial ones.

Your Total Net Worth includes three kinds of capital:

• Financial (stocks, bonds, house)
• Human (YOU: your education, talent, skills)
• Social (your friends, family, professional network)

Eventually, over the course of holistic financial planning, the inventory for your Total Net Worth will take into account your other assets, such as your education, years on the job, professional network, and other income potential, as well as any associated liabilities, such as time and effort needed to finish a certificate program to get you to the next level at work.

For now, focus on your Financial Net Worth. Track down your accounts, add up the balances, and find your starting point for the next year.