How much are you worth?
Whether you’re a newbie to personal finance, or someone who is already well on your way to saving and investing, computing your net worth is a worthwhile exercise. Experts even suggest doing it at least once a year.
What is that so-called net worth after all? It is no less a snapshot of where you are on the road to financial freedom. It may delight you or depress you. It all depends on your current state of financial affairs. But remember that it is just that—a snapshot—and the way it will look a year from now will depend on how determined you are to improve your finances.
It is a very, very personal document, and as these things go, you can either fudge it to make yourself feel better, or populate it only with brutally honest figures. It goes without saying the latter is better!
So, how do you do it?
1. List down your assets and liabilities. That basically means listing what you own and what you owe.
2. Categorize your assets into current assets and other assets. Current assets are those you can sell or use in the next three months while other assets are those that you won’t sell or can’t easily sell. Examples of current assets are bank account balances, cash on hand, market value of marketable securities like bonds, stocks and mutual funds. Other assets may include your car, house, furniture and fixtures, the cash value of your insurance policies, interest in a business, jewelry, you get the picture.
3. Group your liabilities. Current liabilities are what you owe within the next three months and recurring payments like credit card bills, loan and mortgage payments. In the “other liabilities” section, list down everything you need to pay in three months.
4. Deduct your liabilities from your assets, and there you have your estimate of your own net worth.
Through the years, it has been proven that having everything in black and white will help one keep their feet grounded. When you approach this exercise with an open mind, it allows you to keep your eyes on that final goal of a happy golden age in retirement, despite all the distractions of the day. But always remember, while this little spreadsheet may feel like it summarizes your life, life is not all about money! It’s so much more than that, as I’m sure you all know.
You can use Quickbooks or Quicken if you want to update the data every week. It makes life easier.
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