Does the recession have you thinking more about your personal finances? Maybe you’re ready to create a budget, or put a plan together to live debt free.
Assets – Liabilities = Financial Net Worth
Knowing your financial net worth tells you where you’re at today and let’s you quickly understand your financial health. It’s a measure of your assets minus liabilities.
Ideally, you want a positive balance. Either way, positive or negative, it’s a good idea to look at your personal financial statement once a year to see what type of progress you’re making towards your financial goals.
Tracking financial progress
If a positive balance increases from last year you can quickly see you’re on the right track to decreasing debt and increasing your assets, i.e., your car was paid off and your retirement portfolio did well this year.
Used for making tough financial decisions
Beyond knowing you financial health, it can be useful in a tough economy as a tool for making financial decisions.
A recent Yahoo Finance article, How Does Your Net Worth Stack Up, says calculating your net worth can be especially useful during volatile economic times like those we’re experiencing today.
One reason is that doing so can give you an idea of just how much of a margin of safety you have against financial setbacks. That’s useful information in an iffy economy like this one when you’ve got to be particularly careful about deciding how much you can afford to spend, how much you should save and how you ought to invest.
Tool for managing change
Your net worth will change as you gain momentum towards your goals or experience financial setbacks. Use it as a tool to help you change direction. For example, after reviewing your net worth, you may choose to sell a car that reduces the liability side of the equation and gets your monthly payment down.
Don’t compare to others
Don’t get hung up on trying to compare your situation with others. There are too many variables such as size of family, spending history, medical expenses and more that figure into people’s financial equation. We all have different experiences and setbacks, but the key is to chart the course to managing your money wisely today.
If you’re working with a financial counselor, calculating net worth is a typical first step. Calculate your financial net worth with a free worksheet used by Crown Money Map coaches in counseling sessions.
Do you know of other tools helpful in calculating your net worth?
