Now that you have started tracking your everyday expenses, there is one more step necessary to rip the bandage of your financial past away. It’s time to determine your personal net worth. Here is a word of warning for many of us this is not going to be pretty. If you are here on this site looking to gain skills, more than likely you could be looking at a negative or very low number. But be assured finding out where you are will help you to get to where you want to be. It’s like starting a diet you need to know your starting weight in order to determine the goal of how much to lose.
What is Personal Net Worth?
Let’s start with a personal net worth definition. Your personal net worth is a combination of your assets and liabilities. Assets are things that you own that have a monetary value. Just about everything you own has some value the question is how much. Liabilities are any obligations that deplete financial resources. Think of this category as your bills. When you subtract your liabilities from your assets you have your personal net worth formula. Finding your net worth is what will help you to formulate your personal wealth plan.
Discovering Your Assets
This is where the real work comes in. You will first need to start by taking inventory of the things you own. All successful businesses have an inventory of their assets. Get a notebook and create three columns: Item Description, Condition, and Value. Item description should include the year, make and model numbers if applicable. The condition will help to determine the value listed. Finally, the value will need to be calculated. You might be thinking how can I determine the value of my items? We can address that in a later post but here are some websites to get started:
This list will certainly be a benefit. Having an inventory list of your personal property will help you to get your true net worth. It will also help in any unforeseen disasters. A thorough inventory list helps in insurance claims. Instead of having to to figure out what you own you will know exactly what you have and possibly what was destroyed or missing.
Determining Your Liabilities
Next, will be the easier task of determining your liabilities or in simpler terms your total debt. It’s time to look at your bills. For this list, you are just looking at the sums of money you owe for the things in your possession. This would include all loan amounts: mortgage, car, personal and credit cards. If you owe a balance it should go on this list. What you will not include in this list is your regular expenses. We will add those later. In your notebook, you will need to add 3 columns: Debtor, Amount, and Interest rate. Hopefully, this list is not long and expensive, but as mentioned before, national averages are pretty high.
What’s Your Number
Now that you know your numbers do the simple math of subtracting your liabilities from your assets. What is your net worth? Is it positive? Good job. If it is negative don’t panic. We are going to work on that together. The goal here is to just get all the facts so that you know what you should be working towards.
This process might take a while but take your time. We need to get accurate numbers for our financial rehabilitation. Believe me, it will be worth it. How are you feeling about this process so far? Let me know in the comments. As always if you have any questions feel free to drop them below.