It is a good idea to know what you are worth, in dollars, right at this moment. Not only will it show you where your finances stand right now, but it will offer a benchmark to compare your progress one year from now and each year after that.
Your Net Worth is everything you own minus everything you owe, or to be formal – assets minus liabilities. Get out two sheets of paper. On the first sheet, put down the value of each money account on a separate line. Pick a day that you designate as your Net Worth Day. Look at your statements for that day and use that dollar amount. Money accounts include your cash – savings, checking, CDs. Next, list separately the dollar value of each regular and retirement investment account on Net Worth Day. Add the current market value of any real estate investments you own and/or business assets if you own your own business or own part of a business. List your best estimate of the market value of your personal assets. Include your home, vacation cabin, car, boat, RV, collectables, jewelry as well as money owed you by someone else. Cash value of life insurance would be a line item because it is an asset. If you own anything else of value, put it down. The total of this list is your assets.
On the second sheet of paper, list everything you owe – mortgages, what you owe on your vehicles, money you owe others as IOUs, loans against insurance policies or 401(k) plans, investment debt, student loans, business debt, and anything else you owe others. If you pay off your credit card monthly (as you should), the balance would be zero. Otherwise list your balance due on each credit card as of Net Worth Day. The total from this page is your liabilities.
Subtract liabilities from assets and you have your Net Worth Statement on your Net Worth Day. The idea is to set goals to improve your net worth year to year. And yes, you can have a negative net worth. Negative net worth highlights a problem; you must take steps to boost the numbers for next year.
Once you know your net worth, you know where you stand and you can set realistic goals to improve your financial situation. You can see where your assets are and whether you need to diversify. A low number on the retirement line should be a call to increase retirement savings. You might even discover assets you didn’t know you had. This is a good, relatively simple exercise which could change your life. Do it today!
PS – If you need a guide as a starting point, I can email you a blank Excel Net Worth Statement.