Knowing Your (Net) Worth
Knowing Your (Net) Worth
ZachP Dec 30, 2022 THE SYTCH
Keeping track of your net worth is equivalent to having an annual checkup with the doctor that includes bloodwork. Getting the annual doctor checkup may not be necessary, but if you want to optimize your health as you age, it is vital. How do you avoid high blood pressure becoming a major issue? Identify it as early as possible and treat it. The same goes for many other ailments or conditions as you age, such as issues with your sugar levels.
Think of tracking your net worth like the annual doctor checkup. It may not be a necessary step to achieve financial success for some, but if you want to get nerdy with your finances and optimize every dollar, tracking your net worth is a must. Knowing your net worth every year requires you to do a deep dive into your finances. This forces you to diagnose any issues you are having.
Getting started with anything in life is one of the hardest parts. New information is scary. If you keep a general track on the numbers in your checking and savings account, you may have an idea where you stand financially. But you are keeping your relationship with your finances at arm’s length. To get a real grip on your financial health and your future, you must have an intimate relationship with every dollar to your name. No, do not name each dollar bill, but feel free to nickname them
What Does “Net Worth” Mean?
The simplest way to explain your net worth is to implement the following formula. Assets minus liabilities = net worth. In other words, your net worth is how much cash you would have if you were able to liquidate your major assets, minus your debts. There are many sources out there that walk you through what to include in your asset column and what to consider as part of your liabilities. Personally, we use this tool to keep track of our net worth. There are many free resources out there as well (such as this post).
No matter the method you choose, please make sure to do three things immediately:
Start today.
Do it again once every year moving forward (I have read how some people track it weekly. I am not a fan of this, but if that is what it takes for you to stay financially fit, do it!)
Compare your net worth to previous years and see if there is anything you need to change.
If you can manage to do these three things moving forward, you will undoubtedly become financially fit.
How To Calculate Net Worth?
You will first want to figure out what to include in your “asset” column. The major assets I include are cash, investments (tax free, tax deferred, and after-tax), business interests, and property. I will go through each in turn.
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