Can you agree that it is vitally important to your health to attend regularly scheduled checkup appointments with your doctor? Preventive care is the most effective way to assess your health. Now ask yourself, “When was the last time you assessed your financial health?” Having a financial checkup will help you determine what adjustments are needed to be on the right path of maintaining a healthy financial lifestyle.
One important step in assessing your financial health is knowing your net worth. Understanding your net worth is the best way to see where you stand in your financial journey. Knowing your net worth allows you to get a clear picture of how close or how far you are away from reaching your financial goals. Your net worth is simply calculated by taking the value of your assets and subtracting your liabilities. In simpler terms, taking the total of what you own and subtracting the total of what you owe. If you have more assets than liabilities (own more than you owe) then you are considered to have a positive net worth. If you have less assets than liabilities (own less than you owe) then you are considered to have a negative net worth. Do not be discouraged by having a negative net worth. The point of completing this assessment is to know where you stand today, determine what changes need to be made and track the progress on a regular basis.
Let’s getting started with our assessment. First, compile a list of all your assets. An asset can be thought of as something that has monetary value. Here is a list of items that you can use as your assets:
As you compile your list of assets, determine the market value of each item. The market value is the highest estimated price that a buyer would pay, and a seller would accept for an item in an open and competitive market. Once you have your list, tally the amount of the compiled items. This figure is known as the total of your assets.
The next step is to compile a list of your liabilities. A liability is an amount or debt owed to a bank, lender, creditor or another provider of goods or services. Typically, some of your liabilities will come from your list of assets as there may be an outstanding balance remaining, yet to be paid. Here is a list of items to consider as your liabilities:
As you compile your list of liabilities, indicate the balance or the remaining amount owed for each item. These amounts can be found on monthly statements that are sent from creditors. Or, you can call the creditors to get the outstanding balances for each item. The accumulated total of outstanding balances for the listed items is known as your total liabilities.
At this point, you should have a figure for the total amount of assets, and you should have a figure for the total amount of liabilities. Now to calculate your net worth, take the total amount of assets and subtract the total amount of liabilities (formula: Assets – Liabilities = Net Worth). For an example, if your assets total $400,000 and your liabilities total $350,000, then your net worth is $50,000. This is a positive net worth. Another example, if your assets total $500,000 and your liabilities total $550,000, then your net worth is -$50,000. This is a negative net worth.
This number is vitally important to your financial lifestyle, because the way you handle your finances can make or break you. If you are not satisfied with where you currently stand financially, schedule a consultation with me and I will help you determine the right path specifically for you to become financially healthy and live the lifestyle that you desire.
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