Quick Recap: I found myself £1,400 overdrawn, I joined the Man Versus Debt website, I purchased three finance books: Your Money or Your Life by Vicki Robin and Joe Dominguez, The TOTAL Money Make Over by Dave Ramsay and I Will Teach You to be Rich by Ramit Sethi, I took the very best advice they had, I created 17 Needy Helper financial steps and here I am sharing them with you.The first time I had ever come across the term net worth was after reading the amazing book Rich Dad Poor Dad by Robert Kiyosaki. For those of you who are not familiar with the term let me explain.
Net worth is the term used to describe what your net economic position is. Basically, how much are you worth in a cash sense?
So what is the purpose of defining your own personal net worth?
1. You do not understand how much is too much until you know how much you have!
2. The net worth exercise encourages you to create an asset list and this can then be liquidised to produce a cash injection.
3. If you want a leaner life then you need to treat your life like a business. Evaluating your net worth is what all good businesses do.
Your net worth is simply the total amount of your assets minus your liabilities.
Assets – Liabilities = Net Worth
Your assets are anything of value that you own. Just brainstorm everything; the point is to get everything down onto this spreadsheet. If you look at the Google document that I have created you will see that there is a column for assets for sale and assets to keep. If you own a home you will own a lot of assets and sometimes this can take a long time to create this list. I suggest assets are recorded on a separate spreadsheet and just the total cash value used on the net worth template shown below. For a look at asset collating in action check out the Man Versus Debt blog.
Once you have created a list of all your assets you then have to establish how much everything is worth. For most items it will be an estimate and that is fine. For things like homes, pensions and life insurance you may need to make a few phone calls.
Now complete another brainstorming exercise to discover everything that you owe. This includes your mortgage, car lease, loans and credit card details. Once again there is a little bit of investigatory work but it shouldn’t take that long.
At the end of the exercise you have a figure that will either be a positive net worth or a negative net worth. But much more than that you will have a great understanding of how much you own and how much you owe. Just having this understanding will have a positive effect on the way you handle your money. Now the challenge is to set some goals to increase your net worth, year in and year out. Increasing your assets, reducing your liabilities or a combination of both, can do this.
Please feel free to download The Net Worth Template. For the purpose of this exercise just pay attention to the notes I have appended to sections D & E.
Photo courtesy of Cory M.Grenier (CC @ Flickr.com)