When money is tight and you start feeling down about your financial situation, it’s important to keep the big picture in mind. This can be done by reviewing your net worth. Plus, if you go so far as to track your net worth, then you’ll constantly have this big picture before you. This will help you to worry less and allow you to better focus on your goals.
How to Find Out Your Net Worth
Thankfully, your net worth takes more into consideration than just your paycheck. A good definition of net worth is the value of all assets, minus the total of all liabilities. Put another way, net worth is what you own minus what you owe. Generally speaking, this is why your net worth increases over time, due to the fact that you’ll owe less and less on the debts you pay.
When determining your net worth, start by making a thorough list of what you own and what you owe.
What You Own
- Home (its current value)
- Other real estate
- Automobiles and other vehicles like RVs and ATVs (leased vehicles don’t count)
- Jewelry and collectibles
- Household items, like furniture, appliances, etc.
- Retirement accounts, bonds, stocks, mutual funds
- Cash value of life insurance
- The balance of checking and savings accounts
What You Owe
- Home mortgage principal
- Other mortgage principal
- Auto loans
- Student loans
- Credit card debt
- Other loans
Once you have all of these items in order, you’ll next plug this information into an online net worth calculator.
How to Track Your Net Worth
Now that you know your net worth, you can use a spreadsheet tool to keep track of its growth–in a similar way to how you keep track of your monthly budget. Here are four ways that tracking your net worth can benefit your financial situation.
- Financial Progress: We all want to evolve and progress in anything in life, it’s human nature. It’s even better when you grow your money and can look back to the month or year previous and see how far you’ve come.
- Confidence Builder: For example, if you saved an extra $1,000 in your emergency fund or watch your 401K increase due to a bigger contribution, it will make you feel proud of what you’ve been able to accomplish.
- Avoid focusing on just assets: If you have 200K in assets but 100K in debt, you’re just lying to yourself. It’s important to factor both into the calculation.
- Loans: Your net worth can be a factor if you plan on applying for a loan in the near future.
In the same way that it’s beneficial to keep track of your personal net worth, there are benefits to keeping track of your company’s assets. The average SMB likely needs more than a calculator and a spreadsheet to do this, which is why there are so many enterprise-level accounting solutions on the market. To learn more about what’s available for your accounting department and how technology can further your company’s goals, give us a call at 212-796-6061.
P.S. Some businesses struggle to reliably budget out their IT, especially with surprise bills when technology goes down and unexpected updates need to take place. If you are frustrated with the unforeseen nature of your current IT, reach out to Setton Consulting to discuss a managed, proactive approach.