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It’s a big first step toward financial independence — knowing your net worth today. Your “field position” as it were. And also your end goal. To quote Bill Copeland: “The trouble with not having a goal is that you can spend your whole life running up and down the field and never score.”
Then take a bit of time to learn, plan, and grow, using the tools and info on this site, you’ll do just fine. Once you’ve calculated your net worth today, take your next steps toward financial independence. Start your emergency fund. Pay off debts as fast as possible.
Why You Must Know Your Current Net Worth to Get Rich
Net worth is what you own (your assets) minus what you owe (your liabilities). Knowing this number lets you set your financial goals – whether it’s getting out of debt, buying a home, taking a nice vacation, or securing a comfortable retirement.
Some people who calculate their net worth are surprised to find out they’re worth more than they thought. Others are surprised to find out the opposite. Either way, you need the reality check of knowing your current net worth to reach your goals. It’s the “where you are” position on the football field, so to speak. Do you just need to move another 30 yards to score? Or is it 100 yards?
You can easily find out in the next hour. It’ll probably be the most important thing you do all month. Pull out a calculator, your credit card, mortgage, banking, and investment statements.
Learning Your Current Net Worth — The Most Important Thing You’ll Do All Month
Running this number monthly was revolutionary for us. It brought a huge degree of clarity and focus on growing our assets… and a reluctance to spend money casually or carelessly.
Remember too, every loan you pay off lowers your liabilities and improves your net worth. And your ability to live life on your own terms.
Many experts advise doing your net worth calculation once a year – preferably right before you start Christmas shopping, haha. In my opinion, that’s not often enough. Monthly is far better. It’s easier to get sloppy over a 12-month period than it is in 30 days. We all suffer from short memories. Once you start moving the needle and know that you’re doing so monthly, you’ll be encouraged to escalate your plan.
I wish someone had shown me how to do this when I was 25. It would’ve made a huge difference in my financial life. By doing it at a younger age, you’ll stay on track and move toward financial independence and a net worth that gives you the freedom to do more of what you dream of spending your time doing.
Add Up Your Current Assets
Assets are everything you own – either outright or in part – that has financial value:
- All checking and savings account balances
- Estimated equity in your home. Zillow can help. Look up your home’s value. Don’t inflate this number. Subtract your loan balance from the Zestimate to get your approximate equity. Its true value is really only known when you sell.)
- True market value of vehicles (usually lower than you think.) Check kbb.com.
- 401(k)s, 403(b)s, IRAs, and all other investment and retirement accounts
- Any profit-sharing, thrift plans, and unexercised stock options
- Any art, antiques, jewelry, or collections (You may need an appraiser to tell you their value. Otherwise you can exclude these.)
- Deposits you’re owed back for rental apartments, condos, etc.
- Tax returns you’ve not yet received
- Equity in rental real estate (Same process as for home equity.)
- Ownership shares in any business, minus any loans you’re responsible for (Be realistic or get an appraisal. This isn’t the place for dreams!)
Then Figure Out What You Owe… Your Liabilities
Liabilities include everything you owe to someone else. Including personal loans to family members, pledges to non-profits, and business loans.
- Credit card debt
- School loans
- Car loans
- Home improvement loans
- Pledges to non-profits
- Home equity loans
- Business loans
- Loans from retailers
- Any personal loans (i.e., did you borrow money from a relative to buy a car or start a business?)
Now Calculate Your Net Worth Number
To find your current net worth, subtract the total you owe from your total assets. Now you know your starting point… your current position.
Note: if you’re one of the rare folks still eligible for a pension, that’s like money in the bank (assuming you stay on that job long enough to reap its benefits).
But the pension calculation is a bit complicated.
For sake of simplicity here, take comfort knowing that you have it. But don’t get so comfortable that you suspend the rest of your plan. Pensions still come with a degree of risk. And you never know what the future holds.
Move the Needle on Your Net Worth Every Single Day
A mentor of mine once challenged me to improve my net worth every single day. Could I end the day financially richer than I began it? How much can you boost your net worth in the next month? Or the next year?