If you’ve been reading or learning more about money, you might have heard the term “net worth”.
This is a number people use to understand their current financial position. It tells a story of your financial life in a few numbers.
If you’ve never done this before, it can be an actual eye-opener.
And you don’t need to be a math head to work it out. It’s a simple x minus y calculation.
Your net worth is the difference between all your assets minus your debts and liabilities.
Another way of thinking about it – if you sold everything you owned and repaid all your debts, what would be left?
That's your net worth.
Knowing your net worth will give you a picture of your financial progress.
If you keep track of this number of time, it can help put in perspective where you are going and have come from financially.
I track my net worth each month. It has been handy for me over the years, seeing that my wealth and assets have been building.
Even with months of big expenses or low savings, I can see the difference in what I have built now compared to 5 years ago.
If you think this kind of thing might take a bit of effort to work out, I’ll show you how to do it and let you determine yourself. Like I said, it's a simple calculation.
MoneySmart has a helpful calculator you can use for today. If you want to track this regularly, use a spreadsheet.
Basically, you need two columns. The first one is all your assets. Examples include:
- Cars
- House
- Shares
- Savings
- Businesses
List these out and add the value you think they are worth. Bank accounts are simple to find but things like a house or business you must estimate, which is fine.
Now in the next column add your liabilities or what you owe money in. Find out every single thing you can think of:
- Personal loan
- Car loan
- Mortgage
- Business loan
- Student loan
Note it all down. Make sure you put a number for how much each asset and debt is worth
Add each column up(happens automatically in the MoneySmart calculation) and take away the debts from the assets.
There is your net worth.
How do you feel? Shocked, angry, discouraged, inspired?
Looking at something like this for the first time might generate a few feelings.
But you are on the right path.
You are becoming aware.
You know what is happening with your money and wealth.
Seeing numbers like these on paper regularly, especially after a bit of time, can be really encouraging.
You get a visual of where you were and where you are. It gives you awareness of your position past and present, so you can plan a realistic future.
Take that statement of your net worth and unpack that more, but with that being a status of your wealth and ability we can also identify awareness of your habits and handling of money
P.S. While your net worth is a valuable number to know, it is not a marker of success or status. It isn’t a number to show off and display, but one to help you maintain a healthy relationship with money.
p.p.s This activity compliments the 4 step approach I recommend for managing your money. It's all in my guide on building a solid budget here.
