What Is Your Net Worth?

We are at the beginning of the New Year. It is time to review our financial goals we set back in 2017 and see how well we stayed in track.

At the start of this New Year, it is important to know what we are worth. We don’t think much of that and personally, when the thought crosses my mind I only think about how much we paid off on our mortgage principal so far which is not a lot, as I think our valuable asset is our house. It is important to know your net worth. You could be surprised. It is an exercise that allows you to compare side by side what you have that is worth some money and what you owe others. It helps know areas for improvement like if your main assets is in your belonging, you would want to limit increasing that type of asset and increasing other type of assets in you portfolio.

It is not complicated and you can customize it as much as you want but basically, it is your balance sheet where you list the following:

Liquid assets: cash at the bank, retirement accounts, cash at home, investment accounts…

Fixed assets: the value of your house, your cars…

Belonging: valuable items that can be sold like jewelry, freezers, TV…

Then you do inventory of your debts which are your liabilities: mortgage, car loan, tuition loan, credit cards debts…

Your net worth is the total of your assets minus the total of your liabilities.

If it is positive that means you have a positive net worth. Your assets are more than your liabilities.

Next, evaluate the types of liabilities you have to see how you can decrease them. Also look at your assets category and see where the weight is. For instance, if your assets lie on your belonging, you might have to limit that in the future and increase assets in the category that increase in value like investing in stocks. That would possibly limit your liabilities as well if you used to use credit cards to make these purchases. That means you would have to decrease your spending and invest more of your money in things that increase in value.

If your asset is your cars, you have to understand that car decreases in value and it is not how you would want to build your wealth. Also if your house is your main asset, it is good but not great as you don’t want to sell your main residence to free cash. It is good for your house not to be too expensive. It would be an asset as well as a liability for you. It costs to maintain a house. On the other hand, if you have rental properties, they would be assets for you as they generate revenues.

If you own businesses, they should be included on your balance sheet as well.