How will you ever ultimately know how successful you are, if you don’t actually track your net worth? Tracking your net worth is key to understanding whether the decisions you’re making regarding your spending, borrowing and investing; are really paying off, or are just paying others.
What is my net worth?
Your net worth is how much (in money terms) you are worth, excluding debt and encumbrances. So, it’s all of your assets, less all of your liabilities (money owed, like debts).
If you own a house worth $1,000,000/£1,000,000 but have a mortgage of $750,000/£750,000 on it – I hate to break it to you, you’re NOT a millionaire. You’re only worth $250,000/£250,000.
Your net worth is your value in excess of your debt.
What counts towards my net worth?
Almost anything does, in terms of assets and liabilities. Your earnings don’t.
Property and real estate, stocks and shares, cash in the bank, other investments (precious metals, Bitcoin etc.).
Also include any mortgages, loans, credit cards and other debt as a reduction in net worth.
OK, so how do I do it?
List all your assets and their current values. Items like stocks, shares, cash and other investments that are traded on exchanges are easier to value. Things like real estate/property, vehicles, private company shareholdings and the like will take a bit more work, but there are ways you can do this fairly easily. For example; most property websites (Zillow/Rightmove/Zoopla etc.) will have tools that will be able to give you a rough estimate of price in the current market.
Next, list all the debt you have, including loans against your assets (mortgages, vehicle finance arrangements).
Your net worth is effectively the amount by which your assets (hopefully) exceed your debts. If it’s the other way around; don’t despair – you’re a step closer than the majority of people out there who haven’t even done the work to understand their financial position.
I’ve put together a guide on how to destroy your debt which can be found HERE.
How frequently should I review my net worth?
Art the very least you should review your net worth annually. However, I’d suggest rather doing it on a quarterly basis. Monthly is OK too, but some things don’t move much on a quarterly basis, although there’s nothing stopping you from tracking it this way.
What are you really worth? If you’re like most people, you likely have no idea. A lot of wealthy people are of the opinion that it’s hard to grow something that you’re unaware of, so tracking your net worth is a great first step to making progress on improving it. When you can finally see, visually, what your net worth really is, it becomes far easier to target the areas that are pulling you down.
Awareness is the first step to change.