Until last week, every time I heard words like net worth, financial goals, my mind would automatically shut off because they sounded as alien as black holes to me. But since the universe always works for in my favour, I found myself being forced to spend time with the good people at ICEA who did a good job of trying to cure me of my financial-talk phobia by explaining to me these concepts in the simplest terms possible. We started off with the biggie; net worth.
Do you know your net worth? Apparently only about five per cent of people have an accurate idea of what they are worth. If you are one of those five per cent congrats, if you are not, this is your lucky day; you are about to join the club. The amount of money you own is what is referred to as net worth.
Why you should care
Knowing your net worth tells you where you are financially at that point in time. Your net worth is a way to see what is holding you back from achieving your financial goals. It helps you gauge when you can retire and helps you see whether you are losing value or gaining value. If you are losing value, it gives you the chance to arrest the problem before it is too late.
Calculating your net worth
Figuring out your net worth is easy. Add up the total value of all of your assets. Add up the total value of all of your debts. Now subtract the assets from the debts. You might have a positive net worth or a negative one. If you are not really into math, just talk to a financial planner or check online.
Your assets include;
Current market value investment accounts including individual stocks, bonds, mutual funds etc
Current market value of your retirement savings in all retirement accounts (NSSF).
Current market value of your home.
Current market value of your vehicles.
Cash value of your bank accounts.
Items of significant value like artwork, antiques, or jewelry.
Mortgages on your home
Car loans and auto loans
Credit card debt
Liens or judgments against you
Don’t feel bad if your net worth is not where it should be. While net worth is a useful figure, it should probably only be consulted occasionally. Most experts suggest annually or perhaps quarterly to avoid getting too excited or too discouraged. At the same time, don’t just figure your net worth a single time; instead, evaluate and monitor it regularly.
Sometimes your net worth may be negative, indicating you owe more than you own. While that is obviously not ideal, it may not indicate an emergency. For instance, young people just starting out on their careers often show negative net worth. Major market downturns also often may cause an investor’s net worth to turn temporarily negative. When market cycles create negative net worth, it is important not to over-react and sell while prices are down.
Also, the future is sometimes full of pleasant surprises; some of us will inherit money or other assets from our parents. Some of us will marry rich!
Whatever situation you find yourself in, know that it is almost never too late to get your financial house in order. Just start today rather than tomorrow.