Answering the Question: What is My Net Worth?
Whenever I heard the term net worth. I don’t think I ever ventured to ponder the thought, “What is my net worth?” The phrase was so intimidating to me that I didn’t think it applied to me. That was obviously for Wall Street business moguls, not a regular old plebeian like myself.
But then life happened and I figured out that I would have to get serious about my financial health. A large part of financial health is “knowing your numbers,” net worth being one of them.
It’s like being aware of your cholesterol levels, weight, body fat percentage and so forth. The health care industry is pretty diligent about letting people know the normal levels for these health markers. Most people generally know how much they should weigh, what their blood pressure and cholesterol levels should be, etc. But not many people know where they should be in terms of net worth.
Why is Net Worth Important?
Your net worth tells you if you are on track to meet your financial goals. Think about things you’d like to do in life: retire at age _____, have $___ saved for the kids college, own ____ rental properties and the list can go on. Depending on what you want to accomplish, your net worth will give you an idea of if you are on the right track to get these things done.
How to Calculate Your Net Worth
Calculating your net worth is surprisingly easy. Simply add up everything you own (cash in banks accounts, brokerages, 401ks, bonds, real-estate, etc.) and subtract the amount of debt you owe on everything. The resulting number is your net worth.
Let’s take this example:
Car 1 $14,000 (what it’s worth)
Car 2 $22,000 (what it’s worth)
House $350,000 (what it’s worth)
Total Assets: $546,000
Student Loans $45,000
Mortgage balance $325,000
Car note 1 balance $12,000
Car note 2 balance $20,000
Credit Card 1 $15,000
Credit Card 2 $8,000
Total Debt: $444,000
Net Worth $106,000
Can you see how powerful this exercise is? Imagine living in a large, beautiful house in the suburbs with two nice vehicles and decent-sized bank accounts. Now, what if this person was 2 years shy of their planned retirement? Having a such a small sum of money in a retirement account with a substantial amount of debt isn’t the best position to be in.
Even if this person wasn’t about to retire, having so much debt could really jeopardize their ability to save for retirement, a dream vacation, business venture or anything else.
It’s best to tend to this number right away and get a plan to increase is ASAP.
How to Increase Your Net Worth
If you are interested in living comfortably and having a life where you are not struggling with money, it’s a good idea to intentionally increase your net worth. It sounds almost too nonchalant to talk about changing your money picture with a concept as simple as “determination,” but as the old adage says, “Where there’s a will there’s a way!”
There really is no secret to increasing your net worth other than living below your means. If you spend less than you make, the rest is available for putting into savings or investments like stocks or real-estate. This is where your money will grow and eventually increase your net worth!
Interested in checking out my personal work-flow for saving more money, check out my personal savings tool-kit breakdown here:
Resources to Increase Your Net Worth
A Net Worth Tracker
Your net worth can change from year to year. If you are not conscious of what is happening with your money, you might be mindlessly letting it slip through cracks. Your investments might be getting ransacked with fees or you might be paying for subscriptions that you forgot about. PersonalCapital.com is a neat tool that will connect to all your accounts: bank, credit, retirement and otherwise. What’s more is that it will create graphs and charts to show you how your net worth is coming along. You’ll see if your portfolio is too cash-heavy or if you might have too much in international stocks. The analytics are great. It sounds geeky, but that’s what it takes to get rich!) You can use the desk-top version or the mobile app.
A Plan to Dumpt Debt
I find the biggest challenge with net worth is having too much debt. The statistics on the average American household debt is scary: $130,000. At one point, we had over $120,000 in debt and didn’t even own a home! Thankfully we made a conscious effort to get out of debt completely in 2013 and have not looked back. I get so many questions about how we did it. We used the plan in Dave Ramsey’s Total Money Makeover to get out of debt. Get a copy of the Total Money Makeover book new or used here (you can also download it instantly to your phone via the kindle app.)
I also suggest you get the Pay Off Debt app. It helps you create a total calculation of all your debt, plus a payment plan to totally eradicate it!
Don’t forget, if you need to get a list of all your debts, you’ll likely need a credit report. CreditSesame.com has a free one you can pull at any time.
- Get Out of Debt eCourse, Aja McClanahan
- Total Money Make Over, Dave Ramsey
- Pay Off Debt App
A Plan to Increase Your Income
One of the game changers for us was increasing our income. This really made the difference in attacking debt and saving a huge pile-o-money. I started a database consultancy that grew to six-figures to help with our financial situation. The best part was that I was able to work from home about 20 hours a week. Though you can improve your financial outlook with the money you already make, I find that you get better, quicker results adding a bit of hustle to your endeavors.
In additional to starting a home business, we also opened brokerage accounts and began to buy stocks and ETFs aside from our retirement investment accounts.
If you’d like to get the first 3 chapters of my increase income book, enter your information below to get instant access: