How To Determine Your Net Worth

 in Blog / Invest

how-to-determine-your

 

Imagine you are watching the World Series. The Cubs are playing the Indians, and you look up to find that Johnny Baseball from the Cubs just hit a home run to win the game. The team goes crazy, the crowd goes wild. There’s only one problem with this World Series from hell. Nobody kept score. Now the Indians think that they won the World Series. They begin celebrating because they feel they have the right to be winners. We have no idea who won? How stupid would that be?

 

The problem is that most of you are doing the same thing with something that is much more important, your money. You are not tracking your net worth. It’s the only way to keep score of what’s going on in your financial life.

 

The true measure of wealth is your net worth. Always has been and always will be. 

 

 

What is your net worth? 

Well, if you’re running your life as a business (which you should be), then your net worth is your value. In layman’s terms, that means your net worth is your Assets minus your liabilities. So say you have 5,000 in a savings account, and 6,000 left on your car payment. Then congratulations, you have a net worth of -$1,000. You are losing the game. Another common but serious scenario would be you’ve saved $10,000 but have $21,000 left on your student loans. You have a net worth of -$11,000. Your financial situation doesn’t seem as awesome as you thought it was, eh?

 

 

How do I grow my net worth?

Don’t let this discourage you if you are in the red. We are going to show you how to take your life back. I have talked about assets and liabilities in the past and these are key measures to track to get ahead. Always be looking to buy assets. Assets will grow your net worth. That means stocks, bonds, real estate, and businesses all make your net worth go up. So if you have an IRA worth $70,000, a paid off house that is worth $150,000, and $20,000 in student loans you have a net worth of +$200,00.

 

 

Starting to make sense? 

 

What makes your net worth go down are items that depreciate. Cars, boats, clothes, whatever it may be. Some people would argue that these should be added to your net worth. I am not one of those people. Even if you added these to your net worth line, it would still cause the number to go down yearly because they depreciate every year. Only buy these things when you have the disposable cash to do so.

 

 

Okay I’m sold, How Do I Track my net worth? 

If human psychology is involved, I know we won’t do something unless it’s easy. I could tell you to get out a spreadsheet and don’t forget to update it every year (whilst finger pointing), but i won’t. There is a much easier tool to track your net worth that I use every day. Personal Capital is a great app that makes tracking your net worth easy. All you have to do is link your bank accounts, investment accounts, credit cards etc. to the app and you get real time net worth updates. They also let you link to real estate sites like Zillow, to get an estimate of the value of your home (although as a real estate agent, I know Zillow is not always accurate). It’s pretty cool to watch it grow! Personal Capital also has a great interface that is easy to use and user friendly. The best part is that it’s free! So you have no excuses, it only takes 5 minutes to set up. I will probably write a future post about all it’s features but we will stick to the basics for now.

 

 

To wrap it up, make sure you are aware of your net worth. Not keeping track is leaving yourself blind to the health of your finances. It may be difficult to stomach at first (especially if it is negative), but it should motivate you to push and bring that number back to positive and beyond. Make it easy on yourself and grab a Personal Capital account today, what do you have to lose? Now go get some assets!

 

 

 

Cheers,

Andrew

andrew
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