high-net-worth-lifestyle


WHAT IS A HIGH-NET-WORTH INDIVIDUAL?

A high-net-worth individual (HNWI) is a term often used in the financial services industry to describe an individual with at least $1 million in cash or liquid assets.

Most often, due to their substantial wealth, high-net-worth households require additional services from a financial advisor or financial planner. Some of the customized financial services for HNWIs include estate planning, investment management, retirement planning, charitable planning, tax planning, and more.

HOW TO CALCULATE LIQUID NET WORTH

Want to know if you constitute as a high-net-worth individual? Luckily, calculating your liquid net worth is pretty simple. The formula is the total value of your liquid assets minus all of your liabilities. A liquid asset is something you own that can quickly and simply be converted into cash while retaining its market value like cash, savings accounts, checking accounts, mutual fund shares, money market accounts, stocks, and bonds. A liability is something you owe a debt or financial obligation to including a vehicle loan, credit card bills, mortgages, taxes (property taxes, income taxes, sales tax), student loans, and accounts payable.

LIQUID NET WORTH = LIQUID ASSETS – LIABILITIES

For example, consider a household with $1.5 million in assets including home equity, bank account balances, antiques, vehicles, and investment accounts. Let’s say of that, $1 million are liquid assets. The household’s liabilities consist of its unpaid mortgage balance, student debt loan, credit card debt, and an outstanding vehicle loan balance totaling $300,000. The net worth of this hypothetical scenario would be $700,000, therefor not constituting them as HNWIs.

Keep in mind, when determining if someone is a high-net-worth individual, generally only their liquid assets are considered. If you would like to simply calculate your net worth, the formula would be the total value of all of your assets minus all of your liabilities.

TYPES OF HIGH-NET-WORTH INDIVIDUALS

The financial services industry often classifies wealthy, high-net-worth individuals into three categories sandwiched in-between affluent individuals (net worth of $500,000-$1 million) and billionaires (net worth of $1 billion and up).

HIGH-NET-WORTH INDIVIDUAL STATISTICS

“HOW DO I BECOME A HIGH-NET-WORTH INDIVIDUAL?”

Becoming a millionaire is not complicated, it just takes discipline and consistency. There are many variables that come into play when working to increase your net worth—some that you have 100% control of like your spending habits and work ethic/money mindset, some that you have 0% control of like unexpected emergencies and the markets’ returns, and some in-between.

savings-needed-to-accumulate-1-million

The earlier you start investing, the easier it is to reach your goals. View the graph below to see the monthly savings needed to accumulate $1 million by age 654. At age 25, roughly $381 of monthly savings are needed to accumulate $1 million by age 65, whereas at age 55, roughly $5,778 of monthly savings are needed to accumulate $1 million by age 65.

Of course, how much you actually earn depends on how well your investments do, but by starting to save early, you can take advantage of compound interest and be one step closer to reaching your financial goals.

Do you have questions? Contact the Dobyns Wealth Team today to schedule a consultation!

Sources:

1 Capgemini World Wealth Report (2020) – https://www.capgemini.com/nl-nl/wp-content/uploads/sites/7/2020/07/World-Wealth-Report-WWR-2020.pdf

2 Sprectrem Group’s Market Insights Report (2021) – https://spectrem.com/Content_Product/2021-market-insights.aspx

3 Cerulli, “High-Net-Worth and Ultra-High-Net-Worth Markets 2014,” (2014)

Raymond James using Ibbotson Presentation Materials. Morningstar (2010)

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