Calculate your Net Worth!

What is it?

Your Net Worth is your overall financial picture or snapshot. This can help you build a path to your financial goals. If you can figure out where you are right now and look at where you want to be in the future, you can create a path to that financial goal. Calculating your net worth will help give you a good idea of what you need to be doing to build more wealth and become financially free. It can also help you to spend wisely, get rid of your debt and invest in your future.

I’m going to go over the different parts of your net worth, so you can calculate yours RIGHT NOW! So, pull out a pen and a notebook (or your phone) and let’s get started.

The equation for calculating your net worth is this:

Total Assets - Total Liabilities =Net Worth

Spending

Before we talk about assets and liabilities, let’s talk a little about your spending and expenses. Knowing where your money is going every month is VERY important!

Categorizing your expenses can help you to see where your money is going. When you create a budget, it is helpful to break down your spending into smaller categories so you have an overall understanding of how much of your money is going where. If you are paying off debt, it also allows you to look at certain categories and where you can make changes that will allow you to begin paying off your debt. THIS is where EVERYTHING can change!

Some basic categories to start with are:

* Housing/Shelter: Rent, Mortgage, repairs, property taxes, renters ins or homeowner’s insurance, furnishing, HOA fees, etc.

* Utilities: Electricity, Water, Sewer, Trash, etc.

* Food: Groceries, restaurants, meals out, kids’ lunch money, etc.

* Medical: Insurance, deductibles, prescriptions, co-pays, dental, etc.

* Transportation: Insurance, registration, gas, repairs, etc.

* Education: Tuition, books, dues, fees, school pictures, yearbooks, school supplies, etc.

* Debt: Credit cards, personal loans, student loans, lines of credit, car loans, money owed to family, cell phone payment plan, etc.

* Recreation: Vacations, magazines, newspapers, subscriptions for Netflix, Hulu, etc., sports for kids, magazines, etc.

* Technology: Internet, Cell Phone bill, VPN, security software, replacement cost of technology, etc.

* Giving: Donations, charity, church, non-profit organizations, etc.

* Savings: Long term and short term savings, etc.

* Investments/Retirement: Retirement plans, 401k contributions, etc.

* Insurance: Any additional insurance not covered above, such as Term Life, Long Term Care, etc.

* Additional categories commonly used: Clothing, Spending, Personal, Gifts, Entertainment (if in Sales), etc.

There are also several types of expenses to remember when creating a budget. Some happen every month, and others occur only periodically or annually.

*Fixed expenses are expenses that stay the same from one month to the next. Some examples of this are your rent, your mortgage, your car loan, and your insurance.

*Variable Expenses are expenses that you have each month that vary or fluctuate. Examples of variable expenses are groceries, utilities, gas, meals or spending money.

*Periodic Expenses: Expenses that occur on an irregular basis. These can occur annually, quarterly or every 6 months for example. These are important to add into your budget so you don’t end up with a surprise expense that you forgot to plan for. Examples of periodic expenses are membership fees, car registration, holiday spending, birthdays, self-employment taxes, property taxes, income taxes (if you owe), tax preparation fees, car maintenance, sports registrations or uniforms for kids, school registration, and tuition or education fees.

Now that you have your spending tracked, I hope you will take time to create a budget for yourself and take a look at where your money is going. Ask yourself - “Are these expenses necessary? How can I cut back?”

Assets

Let’s take a look at your assets!

Here are 4 different types of assets:

*Tangible Asset: An asset with a physical presence such as cash, stocks, equipment, property, etc. Usually has a finite monetary value.

*Intangible Asset: Assets that have no physical presence such as patents, copyrights, trademarks, brand value, etc. These usually have theoretical values.

*Fixed Asset: Assets that cannot easily be converted into cash such as property, buildings, equipment, etc. and are considered Long-Term Assets.

*Current Asset: Assets that are more liquid and can easily be converted into cash, consumed, or expended within one year.

Can you think of some assets that you have?

Here are a few examples:

* Houses

* Real estate

* Cars

* Jewelry

* Cash or cash equivalents

* Investments such as mutual funds, bonds, etc.

You are going to need to know the value of your assets in order to calculate your net worth. Here are a few things to think about:

Many assets are valued at 'Market Value', or what the asset would bring if the asset was placed for sale on the open market. This can be a little tricky to gauge if it is an item that you are not as familiar with. (Hello, Antiques Roadshow!)

One of the easiest and fastest ways to determine the value of an uncommon asset is to take it to an appraiser that is knowledgeable about the item. If you need to be a little more frugal, you can also find at least three of the same or nearly identical items that have recently sold and average out the value of the item.

We have seen many real estate shows do this when they are looking to price a home. They evaluate sale prices of "comps'', or homes that are very similar and in the same neighborhood as the house that they are about to put on the market. This gives them a gauge as to whether the price they were considering is too high or too low, based upon recent sales or the market value of that home

Knowing the market value of your assets is essential in discovering your net worth!

On another note, to liquidate an asset means that you are converting an asset into cash or cash equivalents by selling them. We sometimes hear this term used in bankruptcy as one may choose to or may be forced by judgement to turn assets into liquid, or cash. In many cases, this cash is used to pay debt or creditors. If it is a business, liquidation can also be a means to raising cash.

Another term related to assets is Equity. There are a lot of people who get into conversations about assets, especially real estate, but may not really know what Equity in your home means. Equity is the difference between what your current home's value is minus the total amount of money you still owe on the property. When people say they are "upside down" on their home, what they are referring to is that the amount the OWE is greater than the value of the home So, if they sold the home, they would still have an outstanding balance they would owe to their lender. We heard this a lot in the lead up to the 2008 recession. Do you have equity in your home?

Take a few minutes to list out the assets you have and calculate the total sum of their value. You will want to include values of items that are owned free and clear! If you owe money still, only the equity you have would be considered an asset. In some cases, some financial professionals will not consider equity if there is still debt on the asset.

Take a few moments to jot down what your total Assets are and we will continue on with Liabilities, following up with your total Net Worth!

Liabilities

Liabilities are what you OWE. As Nerd Wallet says, "Liability is a fancy word for debt." Liabilities can be owed to companies, educational institutes or even family members. Liabilities are financial obligations between two parties where a transaction has not yet been completed or paid for.

Can you think of what your financial liabilities might be? Here are a few examples of liabilities to help you think:

* Loans: Student, Personal, Auto, Payday, Secured, Unsecured, Home, etc.

* Credit Card balances

* Mortgages: Primary, Rental or Other Property

* Child Support

* Lines of Credit

* Loans for investment purposes

* Unpaid Income Tax

* Unpaid Taxes and Interest

Also don't forget about Tax Liability! A tax liability is the money you owe in taxes to the government. Generally, a tax liability refers to federal income tax liability, depending on where you live. However, this can also include state and local taxes. Make sure you are always taking ALL taxes into account!

Now that you have a good idea of what your liabilities are, write these all down with the corresponding amounts, then add them together so you have a total sum. This will show you what you have outstanding (or what is being owed to others).

Calculate it!

So, make sure you have the numbers written down of your total assets and liabilities, and it’s easy to calculate your total Net Worth!

Total Assets - Total Liabilities =Net Worth

Ideally, you would like your Net Worth to be a Positive number, but many people discover that they have a Negative Net Worth, meaning their Liabilities outweigh their Assets.

Essentially, your Net Worth is a financial report card giving you the results of your financial health. It can also give you a means of understanding if you are improving or declining in your financial health.

If you're happy with your Net Worth, awesome! Keep up the good work!

If you are less than excited with your Net Worth or have a Negative Net Worth, there are things you can do to change it. One of the easiest ways to begin is by getting on a budget and paying off debt.

As a financial coach, I am here to help you do that! Set up a free consultation call with me, and let’s get you on the right track! Click here to learn more.

Here are some great examples of things you can do THIS MONTH to improve your Net Worth!

* Pay down debt, including credit cards, student loans, etc.

* Avoid borrowing money, which increases your liabilities

* Decrease your Liabilities

* Cut down on expenses

* Pay off your mortgage to increase your Assets

* Invest to increase your Assets

If you need more help, get in touch with me! After paying down over $75,000 in debt myself, I can know what a burden that debt can be. But, since I have learned how to pay off debt, I can now teach YOU too!

Schedule a free consultation call with me and I can help get you on the right track!