Your Full Financial Picture: Understanding your Net Worth

Keeping track of your financial health and well-being can sometimes feel like a bit of a challenge. You might have chequing accounts, savings accounts, RRSPs, TFSAs, FHSAs, margin accounts, and a host of others all spread across several financial institutions.

This makes it difficult to see your overall financial health at any single point in time. 

However, the good news is there’s a way to take a snapshot of your overall financial picture. We’ll show you how you can take a step back and look at your whole financial picture with a simple calculation known as your net worth.

Your net worth is the sum of all your assets (bank accounts, investments, real estate, etc.) minus the sum of all your debts (mortgages, student loans, credit cards, etc.). This number becomes even more important when you realize its relationship with your financial security. When you have a higher net worth, typically it gives you more freedom in making choices, whether it’s starting a business, changing to a different career, or retiring early.

While not a perfect measure of your overall financial health, your net worth provides three very important pieces of information.

1. It shows where you stand financially at a moment in time.
2. It conveys your potential for financial security in the future.
3. It gives you a number to measure your progress for your overall financial health

At different life stages, your net worth will  change. It may be lower when you have just graduated from college (due to student loans) but it can increase as you start working and saving more. Remember, your net worth isn’t a static number. It evolves over time based on your situation and life choices.

If you find yourself with a low (or perhaps even negative) net worth, that could be a sign that your financial situation is less than optimal. However, if your net worth is increasing over time, that can show that your situation is improving and you are moving in the right direction. But to find out, you must first track it.

The first step of calculating your net worth is to figure out the total of all of your assets, to do that you simply add up everything you own. This includes bank accounts, investment accounts, bonds, GICs, real estate (if you own your home this would include the total market value of the property. If you have a mortgage on that home that will be covered in the liabilities section below). Additionally, you can add in physical assets such as your car, or other possessions (your vintage sneaker collection perhaps).

If you’ve got accounts across multiple financial institutions, this can be a bit of a challenge. As of 2022, the Bank of Canada had 2.5 million accounts of unclaimed property with a total value of over $1.8 billion dollars. In order for an account to be sent to the Bank of Canada it needs to be dormant for about 10 years.

As you can see, losing accounts with money in them can be surprisingly easy. If you want to see if any of those 2.5 million accounts are yours, you can check out the Bank of Canada’s Unclaimed Property Office.

If you have investment accounts at multiple financial institutions and want to consolidate them at one place, Questrade makes it easy to transfer your accounts into one place. Plus, Questrade can even reimburse transfer fees that other institutions might charge you.

Calculating what you owe is the next step. It can be a lot less fun than calculating your assets, but it is equally important.

If you have a mortgage or are a recent graduate with student loans, it’s possible that you could have a negative net worth. That’s when the velocity of change in your net worth calculation becomes important. As you pay off your debts, you’ll see that your net worth number will change and move into positive territory.

Reviewing your debts and liabilities also gives you a chance to find opportunities to pay them off faster or areas where you might be able to get your interest rate on the debt decreased. To learn more, please take a look at this helpful guide about paying off your debt effectively.

Your net worth is a vital part of your full financial picture, but it is equally important to know that it represents a moment in time.  A single photograph doesn’t capture your full journey and doesn't define your entire financial life. 

If your net worth isn’t yet the number you want it to be, it can point you in a direction of where you can improve your financial health. This will give you something to measure against as you move along your journey to financial security and success.

Note: The information in this blog is for information purposes only and should not be used or construed as financial, investment, or tax advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.