Are you asking: How Rich Am I? Net Worth UK edition

If you are a Brit asking: How rich am I? Net Worth UK then this post tries to give the answer. I sometimes get accused of being obsessed with net worth, but I genuinely feel it is the most critical measure for understanding what stage of financial freedom you are at, and where you are heading to.

Here, you’ll find the 8 steps to calculating your net worth, and how to determine if you are rich compared to other Brits.

If you ask most British people what their net worth currently is, you will see a blank face. I know this for certain as I once walked down Oxford Street asking every random stranger I met this very question. Needless to say, I was quickly collared by the Old Bill. Anyway, let’s get back on point. If you’re question is How Rich Am I? Net Worth UK – read on.

Why don’t British People know their net worth?

In the UK there is a stereotype that we don’t like to speak about money. Definitely not how much money we earn or how much money is in the bank. It’s considered vulgar. Or perhaps we are simply less interested in money and more interested in class compared our American cousins.

So the chances are nobody has ever asked you directly how rich you are. And if they did, you may well have thought it was part of a scam phone call, or somebody looking for a sugar daddy.

How Rich Am I? Net Worth UK is the answer

To discover how rich you are, you must calculate your net worth. It baffles me why British people aren’t taught about net worth in school. Maybe teachers are worried that the kids will start asking them about their net worths, which will bring up a whole bunch of embarrassment and make their working day even more challenging.

Your net worth is the market value of everything you own, minus everything you owe. Put simply, your net worth is the British Pounds you could get in your hands if you sold everything and paid off all your debts.

Calculating your Net Worth in the UK

For someone to be 100% certain of their net worth, they would have to sell everything, down to their underpants, and add up the cash they have at the end of it. But that would be a little extreme – so instead we make an estimate.

To make our net worth estimate, you need to value the stuff you own and the stuff you owe.

The Steps to Calculate your Net Worth

Step 1 – Pick a day to do it

Net Worth is your the overall value of your assets less debts at a particular point of time. Wait a week, and your net worth will change. Money will come in or leave your bank accounts. Share prices and foreign exchange will move.

So it is always best to choose specific day. You will be able to say – on Tuesday, 8th of November, my net worth was £4.86 – or whatever.

You should also decide right now if you want to calculate you personal net worth or your household net worth. To do your household net worth, you may need your loved ones to reveal their financial particulars. For many people, it’s easier to first calculate your personal net worth before brining the topic up with your other half. . .

Step 2 – Open a spreadsheet

A few spreadsheet addicts will be overjoyed with this recommendation. The advantage of a spreadsheet is you can have a separate row for each item, it will add up all the amounts you own and owe automatically, and you can add new columns in future to compare your net worth trajectory.

You can, of course, instead add up your net worth on the back of an envelope, or in your head.

But if you really want to know how rich am I? Net Worth UK is best calculated using a spreadie.

Step 3 – Do the easy assets

The easiest assets to value in GBP are the ones that are already valued in British Pounds. Here, I mean essentially the cash you have in the bank, current accounts, savings accounts, Cash ISAs, Premium bonds, and anything under the mattress.

Take today’s balance for each of these assets and jot it down into your spreadsheet.

Note that if you have any money in foreign currency, translate them at today’s exchange rate in to British Pounds.

Step 4 – Now list your easy liabilities

This is a less pleasant exercise. Pull up your credit card balances online, any overdrafts your are using, and any loans you have.

Add a row for each of these on your spreadsheet. Be sure to mark these as negative items. You can’t count the amounts you owe as assets – no matter how tempting! They are liabilities.

Don’t worry at this stage about how much you are committed to paying.

Step 5 – Dealing with your home

If you are a renter, then your deposit is an asset that should be included in your net worth calculation (unless you are expecting to lose it when you next move home).

If you are a home owner, make an estimate of the value of your home, and add this to your assets. Certain websites like Zoopla can help you get a valuation here. You could also ask an estate agent, or just use comparables of similar homes that have sold recently near you. You don’t have to be 100% accurate – this is only an estimate. But please, don’t just use the price you bought the house for. One thing is certain – the current market value will be different to what you paid.

Home owners with a mortgage should include a separate row, with the amount they still owe on the mortgage. Don’t net this off against the home price. Treat this as a separate liability – so make sure it is a negative value on your list.

Step 6 – Add more complex financial assets

If you have a pension (and you probably should) – it has a current market value. In fact, a pension is really just another type of financial asset like a bank account – it just has special tax rules, and special payment rules. Find out what it is. For most people with a company pension, you can look up the pension value online. Ideally get the current value, rather than relying on an old valuation letter you may have received in the past.

If you have investments in stocks and shares ISAs, or own some other share certificates or bonds, plus your precious metals and commodity investments, find out the current market value. Mostly, you can find this out online. For paper certificates, look up the current share price and multiply by the number of shares you own.

Own a company of your own? Make a stab at the value if you were to sell the business.

Step 7 – Consider your non-financial assets

If you own other stuff that you could sell, you can add these into your net worth. Some items have strong markets, like classic cars, luxury watches, artwork, high-end jewelery, and Star Wars collectibles. Remember to include what the item would sell for, not how much you paid for it.

For a normal car that you own, include the car value as an asset, and any loan remaining as a liability.

Last, for smaller and less liquid items, like your clothes, furniture, white goods, you can choose to include these in as much detail as you like. Or don’t bother, as many of these items will have very little value on Ebay if you tried to sell them. Remember, this isn’t the insurance, replacement value. It’s how much the ones you own are worth.

Step 8 – Add up all the assets and deduct all the liabilities to find your net worth

Now you have all your assets and liabiliites listed in one place, add them up. Be sure to deduct the stuff you owe from the stuff you own.

Whatever the number you have at the bottom of your spreadsheet this is the answer. You could title this row – how rich am I? Net Worth UK – because this is your UK net worth.

This number could be negative, of course. You have a negative net worth if your assets are worth less than your liabilities. People in financial dependence are often in this situation.

So now you can answer the question: How Rich Am I ? Net Worth UK edition

Now you know how rich you are, you maybe wondering what you can do about the information. I suppose the real test here is whether you net worth and net worth trajectory are way you want them to be. (Clue: most people aren’t happy with their net worth). After all, with a high enough net worth, you would have achieved financial freedom.

There is great entertainment to be had in googling every famous person you can think of and looking up their net worth. In fact, the Sunday Times Rich List is nothing more than a net worth collection.

One way to assess your net worth is by using benchmarks.

UK National Net Worth as a benchmark

According to the Office of National Statistics tells us that last year the UK’s net worth was estimated at £10.4 trillion in 2018, an average of £156,000 per person. So, if you have a net worth less than £156k – you are below average.

How does my Net Worth compare to others in the UK

The good people at the ONS also let you dig deeper into their data. This pie chart shows net worth of UK households in 2018.

The first thing to notice is that only 10% of people have a net worth below £20k. This is great news for most people, who are not in net worth poverty. This group would also include people in negative net worth – ie. they owe more than they own.

To help answer the question: Am I Rich? Net Worth UK – there is more useful information here. Only 17% of people have net worth of over one million quid. So following the 80:20 pareto logic, if you’re net worth is over £1million, then you are safely in the top 20% of British people regarding wealth. I’d say that sounds rich.

Next, I’m dug into the details of this data to draw out some key lessons about British Net Worth. In summary, these are five key lessons on how to get rich in the UK:

• Net Worth increases with age in the UK – in theory
• Parents with young children struggle to be build up £1m
• The richest households are married households
• Don’t get divorced if you want to be rich
• Get a job and get senior to get rich

Net Worth increases with age in the UK – in theory

Digging a little deeper into the numbers, it is clear that the older you are, the more assets you have. This can be for a number of reasons. You’ve had more time to earn money, your assets have had more time to appreciate in value, and your annual spend may have dropped.

So, let’s look at the % of households with a net worth over £1m for different age categories.

There are a number of striking lessons here.

Wealth in the UK peaks in the age 55 to 64 category. At this stage, households have had their peak salary years, their mortgages may be paid off, and children have often flown the nest. Importantly, people are getting ready for retirement.

After age 65, it is clear that people start to use up their net worth by living off their assets. This also reflects the dizzying cost of care homes.

Between age 25 and 45, relatively few have a high net worth. The child drag factor will be at play here. It also takes years of saving and compounding of investments to start to see real returns.

Parents with young children struggle to be have £1m

At first glance, 16 to 24s look like a real anomaly in this data. It was a headscratcher at first until the penny dropped. This is household income. It implies there are around one million 16 to 24-year-olds living at their parent’s house, and so getting swept up in their calculation. Once you understand this, the pattern is clear. Parents generally wait until their kids are out of school before they are able to reach £1million of net assets.

The richest households are married households

An alternative way to let you benchmark is to compare yourself to others with your life circumstances. Handily, the ONS lets you compare against people married, cohabiting, single, widowed, divorced, and separated.

The first observation here is that married people are most likely to have over £1m in net worth, with a huge 25% of married people in this category.

Of course, there are at least two people in the household if they are married. If you take single people at 12% and double that, you get 24%. So actually, being single does not appear to make too much difference on a per person basis. The same is true for the widowed.

Don’t get divorced if you want to be rich

The real story here is that divorce or separation appears to make a real dent in your wealth. Only 9% of people in the UK who divorced or separated have £1m+ in net worth. That’s 3 percentage points less than a singleton.

What’s happening here? There may be socio-economic factors at work, whereby people from poorer backgrounds are more likely to divorce. Or it could be the cost of the divorce itself. Lastly, perhaps, having a lower net worth is a cause of divorce. They do say that money is the most common argument in a household.

If you are divorced and want a higher net worth, the message from this data seems to be to get re-married!

People with degrees get rich

Almost a third of people who are educated to degree level or above have over £1m in net assets. Compare that to having no qualifications – only 7% have over £1m. This suggests that the legend of the kid who left school with no qualifications and went on to be rich is overplayed. Statistically, you are 4 times more likely to build up a net worth over a million quid if you get a degree.

That student loan doesn’t seem so expensive – if its viewed as if it were the cost of purchasing lottery ticket to riches.

Get a job and get senior to get rich

Bad news for all those who wish to be rich but also want to lounge around in a hammock all day, People who work for large employers in senior roles are by far the most group most likely to become rich. 42% of higher managerial roles have led to having over £1 million of net worth. Compare that to any 5% of people in routine occupations, and 9% of people who are long-term unemployed.

The real measure of being rich

My firm belief is that the real way to answer the question: Am I rich: UK Net Worth is to not use benchmarks or compare against others.

The real secret way to understand whether you have reached financial independence.

When you are financially independent, you net worth pays you an income. This means you can choose whether to work a traditional job or persue other interests. It means you are not reliant on putting in physical and mental effort in order to live.

To find out the ten building blocks to about financial independence, start here.

Now you understand you know how rich you are, thanks to the net worth calculation, the next thing for you to understand is your net worth trajectory. In other words, is your net worth increasing, shrinking, or going sideways.