Determining your net worth is the second step to sound
It helps you understand where you are financially starting from so you can move towards achieving your
Your monetary worth is a financial resource. Knowing what how much you have financially helps you determine what options are available to you.
For example, if you would like to go back to school (or have a child going to school), you will need a certain amount of money to do so.
You can use money that you already have, use money from your income, or borrow money to move forward with your goal.
To determine what you have do the following:
Step 1 - List Your Assets
Your assets should include anything that if sold could generate significant money. For the time being don’t worry about if you could sell them immediately, or it might take weeks or months.
For example: It may take months to sell real estate.
When computing what you have:
• Do include anything that will get significant money if sold.
• Don’t include household goods such as furniture, pictures, bikes, toys etc. if they do not have any significant value to others. If you had to liquidate them you would only get pennies on the dollar anyway
Here is an example of a list of assets:
1. Include all retirement accounts that you may have. Include all your stocks, bonds, mutual funds, money market funds and any other financial instruments.
2. Include all non-retirement accounts that you may have. Include all your stocks, bonds, mutual funds, money market funds and any other financial instruments.
Step 2 - List Your Liabilities
They should include all debts that you owe, large or small. Here are some examples of liabilities :
Step 3 - Determine Your Net Worth
Subtract your liabilities from your assets.
If your what you own minus what you owe is positive this is good! The larger the number, the better.
If your liabilities are greater than your assets this is not good. Loans and credit cards have put you into a tough situation. Here are several of the common reasons for this occurrence.
• Some people make a marginal income or are in the poverty level. They are barely able to make it financially. Essentially, they live day to day.
• Personal tragedy such as a family illness has been devastating for some families, both emotionally and financially.
• Loss of a job for a period of time due to downsizing or extended illness (of oneself or a loved one) can lead to a negative net worth.
• The home price is underwater. For many people a large part of their Net Worth in their home. As many home prices have significantly dropped below what they paid for them, so follows what they are worth financially.
• Some people live significantly beyond their means. To become more financially responsible see sound
• Some people do not pay attention to their finances and are unwilling (or unable) to take care of their own finances.
• A combination of the reasons above.
Whatever your current financial position, you now have a baseline to work with. This is an important second step to taking charge of improving your financial situation.
Understanding this financial baseline is critical in moving forward on your financial journey. The next step is to define your
Return from Net Worth to Financial Planning