Know Your Net Worth
Your Net Worth is your total financial worth – measured in dollars and is something I consider a measure of your financial health. Your net worth represents all of your assets minus any financial liabilities or debt. It’s important because maintaining a positive net worth not only keeps you on a positive financial course, but it can help you qualify for loans and more attractive credit terms – saving you a lot of money over the long run. One of the first steps on your path to workable wealth is to calculate your net worth. This will give you a starting point to look back on over the coming months and years.
Crunching the Numbers
When crunching numbers for your net worth, take the following steps:
1st: Tally your assets. To calculate your net worth, begin by adding up the current market value of your assets including your home, cash, savings accounts, stocks or mutual funds, retirement savings, valuable possessions such as jewelry or collectibles, and cars. If you need assistance determining the value of your home, you may want to check out Zillow, which will provide you with an estimate.
2nd: Tally your liabilities. The next step involves itemizing all of your financial liabilities — or money that you owe. This includes mortgage balances, auto loans, credit cards, student loans and any other outstanding debt. As you total your liabilities, examine how much debt you’re carrying now. While low debt levels are manageable, higher amounts may impact your long-term plans. Consider how paying down debt could increase your ability to reach your goals.
3rd: Subtract your total liabilities from your total assets. This is your Net Worth.
Track your Progress
Remember to treat your net worth just like your physical health. If your doctor announced some tests need to be run because something is showing up as “abnormal,” you’d likely insist on finding out as many details about the problem as possible and determine a way to fix it. The same should go with your finances. If your Net Worth is in the red, the time to address it is now. Remember, determining your net worth is more than coming up with a number. It’s also a benchmark for gauging whether or not your assets are increasing over time. If you’re moving in a positive direction, great. However, if your net worth is only holding steady or declining, you’ll want to identify the causes and take action. To streamline the process for yourself, set up an excel spreadsheet or use a website such as Mint to link up your accounts. Repeating this exercise every 6-12 months can help you compare the figure with the previous year’s calculations and measure progress. Keeping tabs on your financial health is essential to help in meeting your goals and taking the time to figure out your net worth is sort of like doing a personal inventory. You’ll have all the facts, good and bad right there in front of you. You’ll see what needs to be paid down, where you can save more and may possibly learn that you may need to reign in your spending. Like what you read? Sign up for the Workable Wealth community for more tips and resources and receive 9 Steps to Workable Wealth, a free guide to help you kick start your financial journey.
