Master your money, understand your net worth

When it comes to personal finances, one of the most important things you can do is understand your net worth. It’s like a financial selfie, a quick snapshot of where you stand in your money journey. Knowing your net worth isn’t just about number, it’s about understanding your relationship with money and how it aligns with your goals. Let’s break it down together, one step at a time.

What is net worth?

In simple terms, your net worth is the difference between what you own (your assets) and what you owe (your liabilities). Think of it as the bottom line of your financial report card.

How to calculate your net worth?

Start by grabbing a notebook or opening a spreadsheet and then write down your assets and liabilities.

Assets: This includes cash in your checking and savings accounts, retirement accounts, stocks, real estate, and even valuable possessions like art, your car, or jewelry.
Liabilities: List your debt (what you owe others). This includes your credit card balances, student loans, car loans, mortgage, or any money you owe.

Here’s the simple formula: Net Worth = Assets – Liabilities

There is no need to stress if your number isn’t what you hoped. It’s not a judgement, your number is just information you need to get where you want to go.

Understanding assets and liabilities

Assets encompass everything you own with monetary value. These are things that put money in your pocket or have the potential to grow in value. Think of assets as your financial allies. Even small things count! This includes your cash accounts, savings accounts, investment accounts like stocks and retirement accounts, real estate properties, and any personal possessions of significant value like vehicles and jewelry.

Liabilities, on the other hand, these are your financial obligations. Basically, what takes money out of your pocket. Some liabilities, like mortgages, can help you build wealth, but others, like high-interest credit card debt, can be roadblocks. This may involve student loan debt, credit card debt, or any outstanding debts and loans like utility bills and money owed to family and friends.

Why net worth matters

Your net worth isn’t just a number to keep hiding or brag about to family and friends. It’s a tool to help you make informed decisions about your money. Think of it as a map. You can’t plan the best route unless you know where you’re starting from.

Therefore, checking your net worth regularly, every few months or at least yearly, can help you stay on track. Not to mention, watching it grow (even slowly) can be incredibly motivating!

How to improve your net worth?

Boost Your Assets: Start small by automating savings or investing in low-cost index funds.
Tackle Your Liabilities: Prioritize paying off high-interest debt first.
Cut Unnecessary Expenses: Little changes, like brewing coffee at home or canceling unused subscriptions, add up.
Set Financial Goals: Whether it’s saving for a vacation or a home, goals give you direction.

Final Thoughts

Understanding your net worth isn’t just about numbers, it’s about clarity, control, and creating the life you want. Think of it as a snapshot of your financial health. By calculating your net worth, you gain a clear picture of where you stand financially today, allowing you to set realistic goals for tomorrow. Whether it’s saving for a home, paying off debt, or planning for retirement, your net worth provides the foundation for these aspirations.

It’s easy to get started. Take 15 minutes to jot down your assets (everything you own of value) and your liabilities (what you owe). Take the difference from the two to obtain your net worth. Seeing the numbers laid out in front of you can be a game-changer. It’s the first step toward financial awareness and empowerment. Also, of course, money is personal. It’s tied to our dreams, challenges, and even insecurities. Like any journey, there will be ups and downs. Some months will feel like wins, while others might feel like setbacks. That’s okay. The goal isn’t perfection, it’s progress. Each small, consistent action you take adds up as you move forward in life.

If your net worth isn’t where you’d like it to be, focus on two key things: (1) increasing your assets and (2) reducing your liabilities. This might mean budgeting more effectively, investing wisely, or tackling high-interest debts. Remember, every big change starts with a small step, and progress is what counts. Like the saying goes, it’s not just about where you’ve been, it’s about where you’re headed. By taking control of your financial story, you’re building a future aligned with your goals and values. So, take that first step today and give yourself credit for showing up. The future you will thank you for it.