Sunday, December 8th, 2019
Your net worth is the sum total of all your assets – your house and investments – less any debts you owe – your mortgage, personal loans and other debt. If you were to measure your net worth every year of your life, you would notice a pattern. For the average person, it starts at zero, takes a dip down with student loans, then slowly rises to a peak at the point of retirement. Thereafter, net worth falls as money is used to fund a comfortable retirement.
Not everyone follows this pattern. Some people start out in life by taking on huge debts for study, cars and overseas trips. Their debt level creates a huge hurdle which must be overcome before wealth starts to rise. Starting out in life this way significantly affects your financial situation at the point of retirement.
Others are risk takers who make it big and then lose it big. The shape of their wealth looks like a roller coaster ride as their fortunes wax and wane. Where they end up depends on how successful they are at parking at least some of their wealth into assets which are less risky.
Then there are those who suffer misfortune – divorce, redundancy, health issues and so on. The shape of their wealth can take a sudden dive downwards and struggle to rise again. The later in life this occurs, the harder it is to recover. Tragically, some people suffer a series of misfortunes, as one often leads to another.
The shape of your wealth is determined by factors which are both controllable and uncontrollable. Reaching the highest possible peak of wealth at retirement means taking charge of the factors you can control, such as debt and risk, and minimising the effects of things you can’t control by being prepared for adversity.
Enter your information below to receive all latest news, tips and advice from Moneymax, directly into your inbox.