What things do you place a high value on? Certainly, we all greatly value our families, your homes, your jobs and numerous other things. But, the one question that many of us neglect to ask is this: "What is my own personal value?" Of course, the value of human life and health are concepts that cannot be arbitrarily assigned mere dollar values to, no matter how great the amount. But there is an exact amount that can be placed on one's financial accumulation and positioning. It's called net worth.
Simply put, net worth gives you an indication of where you stand in the financial realm. This is important for a number of reasons. It's not very difficult to understand that keeping close track of your finances is necessary if you someday anticipate buying a house or car, sending your kids to college, or retiring in the manner you've always dreamed of.
Your net worth – as it pertains to finances – is solely a matter of dollars and cents, addition and subtraction. It all comes down to an equation of assets versus liabilities. Your assets characterize the money that you have (in various forms), while your liabilities represent the money you owe to others. So, in order to compute both sides, you'll need to first gather the pertinent information. Unfortunately, how long it takes to gather depends mainly upon your general level of organization up to this point in your life.
Assets include all items that you own upon which a specific monetary value can be placed, such as checking- and savings accounts, stocks, bonds, mutual funds, valuables and collectibles, and other investments. Anything that you own can be considered an asset, including your home. It doesn't have to be liquid (that is, cash or cash-based); it just has to be yours. Gather the most recent financial documents and statements that you can find to give you the most accurate value of your assets.
Now, let's talk about your liabilities. This includes any and all money that you owe to someone else. Mortgages and car payments typically spring to mind, but this list also includes car insurance, life insurance, credit cards, furniture payments and anything else you don't own free and clear.
Make a list of each of these categories – assets and liabilities. Be sure to include absolutely everything that you can think of, even if you can't find a statement for it. The more comprehensive your lists, the better the estimate of your bottom-line value will be. Net-worth worksheets are available for download across the Internet to help jog your memory so that you don't miss anything. Once you've got everything written down, fill in the dollar amounts and ring up the totals. It's during this 'adding-and-subtracting' phase that everyone hopes for the best (which, of course, would be a positive number after all is said and done), but the worst may not be as bad as you think.
Calculating your net worth gives you a good idea of where you stand and what choices you need to make to improve it. And, remember, even if the results are positive, that's no reason to rest on your laurels. There are still lots of ways to make your money grow even more.
