When it comes to financial planning, one of the most important things you can do is to figure your net worth. Your net worth can give you an idea of where you are at so that you can better plan where you are going. Knowing your net worth is a great way to begin the process of creating a budget, as well as helping you set financial goals.
What is net worth?
Your net worth is basically what’s left over after you subtract all of your liabilities from your assets. It is an expression of how much you are worth, in a monetary sense, right at this minute. It doesn’t include what you make per year, or the bills you pay. It is about what you have now.
How to figure your net worth
You can figure your net worth fairly easily. First, add up all of your assets. These are things of value that you own. Things like fine art or jewelry, the equity in your home, the value of your cars, how much you have in bank accounts and what your investments are worth.
Next, add up all of your liabilities. This is money that you owe. The principal you still owe on your home, the outstanding balances on cars, and credit card debt and other debt.
Finally, you subtract your liabilities from your assets. The result is your net worth. A positive net worth means that you have more assets than liabilities, and a negative net worth indicates that you owe more money than you have.
Take the next step
Once you know your net worth, you can take stock of your financial goals in terms of where you are at right now. Do you need to get out of debt? Are you on track for your retirement goals? Your net worth gives you a starting point to begin solid financial planning and sticking with a budget to help get you there.
You can figure your net worth with this calculator from Dinkytown.net. It also helps you see your projected net worth over the next ten years.