Finding out your net worth can be a fun exercise but it can be a lot more than that.
It also a great place to start when you’re trying to get better with your money and improve your finances.
Why is net worth important?
Your net worth is your starting point.
It tells you where you are financially. And it sums everything up into one number.
If you have a lot of debt your net worth might be a negative number. Don’t let that scare you.
This is where you start your journey from. You’re going to learn how to manage your money and that number will start to rise.
Another reason you should find out your net worth is that its a simple way to see if your moving in the right direction.
You want to see that number climb as time passes.
How do you find out your net worth?
Your net worth is a number and to figure it out we have to do a bit of math.
Before we get into the numbers here there are a few different tools that can help you find out your net worth.
Nerd Wallet has a great net worth calculator that will do all of the math for you.
You could also do it manually with pen and paper.
Whatever way you choose to figure out your net worth save a copy of it. Especially if this is your first time calculating your net worth it is nice to look back and see how much you improve.
Add up all your assets
First find out the value of all your assets. These are things you own that are worth money.
That means bank accounts, investments if you have them. Even physical stuff like your house and your car.
Quick side note here: Some people don’t like to include cars as the value goes down over time. You don’t have to include your car. But if an expensive car that you have a loan on you might want to include it to help balance things out.
Find out the value of each one of your assets. Then add up all your assets until you get one number.
Add up your liabilities
After you added up all your assets it time to figure out how much you owe and add up all your liabilities.
Go look at how much you owe.
Now for a lot of people seeing how much debt they have can bring up lots of emotions.
We aren’t doing this to lay blame on someone or something.
Right now it doesn’t matter what happened in the past to get you to this position. It all about what you are going to do in the future.
Take a deep breath. Try to let go of emotions that aren’t helping you.
It will be okay this is your starting point.
Now take another deep breath. Are you reading to start looking at some numbers?
Find your statements we are going to want precise numbers.
Then find out how much you owe on every debt you have. That includes credit cards, student loans and mortgages. If you owe a friend money include that.
Once you know on how much you owe on every debt you have to add it all up. That number is your liabilities.
Asset – Liabilities = Net Worth
You should have two numbers right now you assets and your liabilities. Which means it time to find out your net worth.
Take your assets number and subtract your liabilities from it. The number reminding is your net worth.
And yes it possible to have a negative net worth.
When people figure out their net worth for the first time it brings up some emotions.
You might have planned to be a lot further in life. It can bring up anger and you might start recalling past mistakes you made.
You might have those thoughts running through your head right now.
Net worth statements shouldn’t be used to make you feel bad. Or as a way of judgement.
Remember that number your net worth is the starting point.
Now you know what your net worth is let work on improving that number.
How can you improve your net worth?
There more then a few ways you can go about doing that. But before we dive into those let talk about change.
Changing things especially with money can be scary and overwhelming. I found that a good way to combat that is to view things in terms of experiments and set time frames.
For example you want to save more money. You think cutting back on how much you spend on groceries would be a good place to start.
To start with you decide to commit to saving money on your groceries for one month. So one month that you’re trying this out there an end date too it.
After the month is over you look at the results. Are you saving money? How is this affecting your life? Are you happy with the results?
It might be yes I’m saving so much money and it worth it to me so I’m going to continue with it.
Or you might say no. I not saving that much money. It making grocery shopping a lot harder. And I feel like I can’t have people over.
So as you go through the ideas below on how to improve your net worth. Pick at least one thing and commit to doing for one month.
You could start by trying to save more money. And there are a couple of different ways you can do that.
- Stop impulse spending
- Negotiate big bills
- Pay yourself first
Of course, there are a lot more ways to save money. And a lot more can be said on how to actually save money.
That why I wrote whole blog posts about saving money. You can find them all here.
Pay off debt
You can also improve your net worth by paying down debt.
If you’re in a lot of debt and especially if you’re struggling to get by it might seem like you’ll never get out of debt.
But don’t let that stop you. It’s possible to get better at money management and pay off your debt.
When it comes to lowering your debt load there are a few different ways you can go about it
- Paying more than your minimum payments
- Refinancing to get a better interest rate
- Negotiating your debt down
All of those are different approaches to tackling debt. And you can try whatever appeals to you.
If you do go the refinancing route put the money you’re saving on interest towards your debts as well. To learn more about refinancing read this article.
If you’re interested in trying to negotiate the amount you owe down. This article covers everything quite nicely.
Make more money
The last thing you can do to improve your net worth is to earn more money.
So a few ways you can make more money
- Ask for a raise at work
- Take on side jobs
- Sell things you no longer use
For a lot of people making more money is the hardest and the scariest way to improve their net worth.
The thing is if you can make more money you can continue living your current lifestyle assuming you’re living within your means and still improve your net worth.
Track your net worth
Once you figured out your net worth and try improving it. It time to see if actually working.
Best thing to do is find out your net worth again.
If the number went up you’re doing great. And are on the right track.
Sometimes your net worth goes down. If that happens you need to ask why?
What happened that your net worth went down?
Did you have any big purchases? Or payments you have to make?
My insurance and taxes are due in the same month. That month my net worth usually doesn’t go up.
I’m happy if it stays roughly the same because I knew a lot of money going out that month.
Don’t be discouraged if your net worth didn’t go up.
Figure out why and see if you can do better next month. And that money management in a nutshell.
Finding out where you’re at and figuring out how you can improve.
What are you waiting for? Find out your net worth. Try to improve it. And the look at your net worth again and see if it worked.