Growing Your Wealth Starts with Knowing Your Numbers. Your Net Worth is the Perfect Place to Start.
When I start talking to fellow millennials about things like investments, tax savings, and net worth, their eyes glaze over.
I get it – we’d all rather avoid taking a stark look at our finances.
If you want to master your wealth and create lasting financial success, you have to make some uncommon decisions. One of those is calculating and growing your net worth.
What is Net Worth?
Your net worth is the difference between what you own (income-producing assets, capital reserves, etc.) and what you owe (student loans, mortgages, car loans, etc.) In order to reach financial freedom, you have to take control of your money, and ensure that your net worth is positive and growing.
The Net Worth Formula
The formula for calculating net worth is one of the simplest in finances. Once you know it, you’ll be able to quickly evaluate your financial status and use it to make effective financial decisions.
Total Assets – Total Liabilities = Net Worth
How to Calculate Your Net Worth for the First Time
Create a list of your assets. Take an inventory of everything you own, and give each asset an estimated value. Do a little research on what your major assets are selling for in similar condition.
The value of small businesses you own should be calculated based on the business multiplier formula that would be used if you were selling. List each asset’s value and add them together for a total asset value.
Calculate your total liabilities. Next, you’ll want to add up everything you owe to calculate your total liabilities. When I say everything, I mean everything.
Include your car loan, total student loan balance, all credit cards and personal loans, and your mortgage.
Add all those payoff amounts for the final tally. Whatever the amount, it’s okay. Looking at what you owe will give you clarity and focus.
Subtract the liabilities from the assets. Done. Congrats, you’ve calculated your net worth! Whether that number is positive or negative, knowing it is a step in the right direction.
In order to grow it, you’ll make a plan that leads to multiple streams of income.
Can you see the power in knowing your net worth? I recommend that review your net worth monthly.
How often do you review your calculate your net worth? Don’t be scurred. Share with us in the comments below.