Net Worth

This guide would never be complete without a subject on your net worth and cash flow – and they ARE absolutely essential to your personal finance management!

Your Net Worth

Too many people immediately make plans for the future, but how many of them first evaluate their current financial situation? Too few!

Like any other things financial, you must first assess your present financial situation. Are you on financial red line? Or are you financially healthy? Like your school report card indicates which subjects you are good or bad at, studying your financial shape by calculating your net worth IS your financial report card.

A net worth is a balance sheet of your financial situation at one point in time, may it be current or past. Again, like your school report card, it tells you how financially well you are doing, what and how much assets and liabilities you have, and how much you are worth, financially.

By assessing your net worth, you will quickly learn your ability to accomplish a certain financial goal – whether you are looking forward to retirement or becoming wealthy.

How to Calculate Your Net Worth

If you are not an accountant by training or accounts have never fascinated you, this may be your first time calculating your net worth. It was probably boring to you when you were in school, but believe me, it gets very interesting when you put in the dollar signs – because this is real life, and it is all about YOU and not some kind of mock case studies.

If you know you have been a financial baddy, you might feel a knot tightening up in your stomach because you need to confront your past finance. But trust me on this – if you can get over this first, you have only the next step to change your financial life.

Here goes:

1. Calculate your assets.

See the table below and fill in the blanks. Also, see some of my personal insights on any items found in the table.

* Most people tend to overestimate the value of their own house, and you probably do that, too. So, whatever amount you are putting in to calculate the value of your house, reduce it by 10 to 20%.

Notice that your assets do not include those such as cars, golf clubs, computers, and more. This is because they DO NOT generate any income for you. They are static items, indeed, and thus are not considered “assets”.

2. Calculate your liabilities.

Next, calculate your liabilities by filling up the table below.

I know that this is probably the least fun part of this financial assessment exercise, but hey, didn’t you buy this guide to change all that around?

3. Calculate your liabilities.

And… ta-da!

Total Assets – Total Liabilities = Your Net Worth

Now, the truth is out in black and white. If your net worth is close to zero or worse, negative, then you have got a serious financial cancer. You are either spending too much money or accumulating too many doodads.

But if your financial net worth is positive and the numbers look beautiful, you know you have had done something right!

In a nutshell, by comparing and evaluating your financial net worth from time to time, you can now track your financial progress – finally!

(I told you fifth grade math would do, right?)