Your Net Worth

One of the best indicators of your financial position is the net worth statement and can help you determine how far you are away from your financial goals.

Net worth is calculated by subtracting all you OWE from what you OWN and is a useful figure to know when you are:

  • Borrowing money and applying for a loan.
  • Settling a divorce.
  • Writing up a will.
  • Determining insurance needs.

To work out your net worth you need to list all of your assets – the financial and material possessions you own that have monetary value. These must be valued at the current market value and not what you think they are worth. Assets include items such as:

  • Cash on hand or in the bank
  • Stocks, bonds and mutual funds
  • Cash value of any life insurance policies.
  • Money that is due to you.
  • Home and other real estate interests.
  • Cars, trucks and other vehicles.
  • Home furniture, antiques, jewellery, coins, artwork, furnishings etc.
  • Annuities and retirement plans.
  • Business interests.

The next step is to list all of your liabilities – the financial obligations and debts that you owe. Some of these will include:

  • Mortgages
  • Credit card debt
  • Unpaid bills (telephone, electricity etc)
  • Tax
  • Loans

Total up the value of all of your assets and then total the value of all liabilities. Subtract the liabilities from the assets to calculate your total net worth.

Seeing your net worth in black and white can be a shock or it could bring relief. Are you happy with the results or are you disappointed? Remember that the net worth calculation is a picture of your financial situation at one point in time. It is a good idea to calculate your net worth at least once a year or when your financial position changes (buy or sell an asset etc).

If you are unhappy with your current net worth then to increase it, you need to set out a financial plan. Increase your income, decrease your expenses and plan for further investment growth are options that you can implement to increase your net worth.

Your goal should be to increase your net worth every year. Developing a financial plan will ensure that you take control of what you have currently and in the future manage efficiently your money to reach the financial goals that you have set.

© 2005 StartRunGrow

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