Know your true net worth: finding out how much you're worth is a major step toward building wealth - Black Wealth Initiative

Black Enterprise, March, 2002 by Matthew S. Scott

WHEN KIMBERLY SUGGS' RETAIL COMPANY, RIGHT ON Casual, announced that it would be ending its 401(k) plan in early 2001, Suggs knew her life was in store for some changes. Right On had a large number of longtime, high-ranking employees, and the percentage of money in the plan allocated to that Soup exceeded the legal limits. Suggs and the other employees were forced to find other ways to enhance their retirement savings. She used the opportunity not only to think about what to do with her retirement savings but also to evaluate where she was in life.

"I had bought my apartment for $120,000 in June 2000, so I had a mortgage and my priorities were shifting," says the 20-year retail industry veteran. Although she was a senior buyer earning $90,000, Suggs didn't feel her career was on the right track. A job change was imminent. Suggs, 39, and single, enjoyed a lifestyle filled with leisure activities and travel. She put away $120,000 in her 401(k) but knew that wouldn't be enough money to retire on, so she reached out for help.

In April 2001, Suggs decided to place her 401(k) savings in the hands of Anthony G. Epps, CEO of A.G. Epps Financial Group in Rye, New York. Epps' 17-year-old firm specializes in the wealth counseling of individuals with a net worth of $5 million or more. "I had a thorough interview with Mr. Epps to get a handle on what my future possibilities were," Suggs says.

The interview between Suggs and Epps established the types of assets and liabilities Suggs had, and the two used that information to determine how to best invest her money to reach her retirement goals. The $1,572 monthly mortgage payments on her two-bedroom North Bergen, New Jersey, apartment, and about $5,000 in credit card debt accounted for her liabilities.

With her retirement account, $2,000 in savings, and her apartment (which had appreciated in value to $150,000), Epps estimated her net worth at about $200,000. After expressing her goals to buy a house in two years, retire with enough money to travel frequently, and maintain her current lifestyle, Suggs was ready to invest. "Once we established my net worth number, it was the basis for how I was going to invest my money, where I would ultimately end up when it was time for me to retire, and what I would need to do to get there," she says.

"We set her up with an IRA variable annuity to give her a portfolio that will allow her flexibility for change without incurring any additional expense for transferring money between accounts or transferring across investment classes with different companies," explains Epps. "After retirement, she can annuitize it and receive monthly benefits if she wants to, or she can pull out a lump sum. There are a number of different options."

Suggs chose six of the 30 mutual funds Epps' firm offers to invest: 20% of American Century Income & Growth; 20% of Mainstay VP Growth Equity; 20% of Janus Aspen Series Balanced; 20% of Fidelity VIP Equity Income; 10% of MFS Growth with Income; and 10% of Mainstay VP Value.

She also made some life changes. In September, Suggs took a pay cut to start a new job as an associate buyer with Ashley Stewart, a company that offers a 401(k) plan with a dollar-for-dollar match--something that will improve her retirement savings and her net worth while at the company. She says, she'll consider selling her apartment in 18 months and use the profits to buy a large home. And she admits now that being more aware of her net worth has helped her to curb spending and reach her financial goals faster.

"I feel good that I started a base for more potential growth," says Suggs. "I hadn't been involved with the stock market, nor do I understand it well, but this is the type of information that gives me more options to improve my life."

So how can you calculate your net worth? Over the past two years, through our Black Wealth Initiative, BLACK ENTERPRISE has stressed the importance of DOFE principle No. 4: to measure my personal wealth by net worth, not income. It's a principle Suggs has now embraced. To resolve questions about calculating net worth, we asked, Mark Mitchell, a registered advisor with AXA Advisors in San Juan Capistrano, California, to help.

Simply stated, what you own minus what you owe equals your net worth. When you begin to calculate a person's net worth, Mitchell says you must first determine "how each asset is held." It is best if each asset is solely held (or owned) by the person calculating the net worth. If the asset is jointly held in any way, "This will make a difference in how net worth shakes out," says Mitchell. For example, "In a community property state, you are entitled to half the assets of anything acquired after marriage, even if you didn't help pay for it." (There are 10 community property states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.)

* REAL ESTATE

Over the past year, we've received a number of questions about the net worth of individuals who owned property. We, at BE, have not counted the value of a home as a full-fledged asset in the past because, as Mitchell explains, "Personal residence real estate is an illiquid asset. The only way to liquidate that asset is by selling it. Or, you can get a new mortgage, equity line of credit, or refinance an existing mortgage--but that's the only way you can get cash out of it, other than a sale. The reason is, if you're trying to show the value of equity in the property, the lender will discount the value of the property because it's not liquid."