When you’re looking at your money situation, you should look beyond things like your income and your savings alone. If you want a complete financial picture, whether it’s because you’re planning for a large-scale life change or because you want to plan for your family’s future beyond your own, then it’s also worth looking into your net worth. Here, we’re going to look at how you can figure it out and why it’s so important in the first place, as well.
Start With Your Major Assets
When you’re starting to put together your net worth, it only makes sense to begin with the big-ticket items. Typically, this means your property, as well as any savings, investments, pension pots, or even valuable collections you might be holding. Writing down their values and keeping a list not only helps you put together your net worth but can also help unlock extra cash when you need it, such as by serving as collateral for loans. Using an online spreadsheet or finance app can simplify tracking and updating these figures.
Get Your Cars Valued
Some assets have a tendency to shift value over time, and that is very true of your cars. What’s more, they tend to be overlooked when calculating net worth because they can get replaced every few years. However, beyond your home, they’re likely to be one of the most valuable assets you have, so learning how to value a car. You can’t just operate off the sticker price, you have to account for depreciation, age, mileage, but also improvements that you have made to the vehicle, to be accurate with it.
You Have To Work Out Your Liabilities, Too
Your net worth isn’t just everything that you own and its worth. It’s also the debts and other liabilities in your name, as well. This should include everything you owe, from your mortgage to any student loans, car finance agreements, credit card debt, and personal loans. Be honest and thorough when you’re putting this together and subtract it from the value of all of your assets to find out your true net worth. Some people may find they have a negative net worth, but that shouldn’t be a cause for panic, as you can start changing that today, such as by putting together a plan to pay off your debt.
Why It Matters
Your net worth is a picture in time of your financial health, not just what you earn but what you’re keeping. Knowing your net worth helps you set clearer financial goals, track progress, and make smarter decisions about spending, saving, or investing. However, it can also be a wake-up call. If you have a negative net worth, then it’s a good indication that your financial health might not be as good as you thought, meaning it’s time to switch things up. Whether you’re aiming to reduce debt, save for a home, or retire early, your net worth acts like a financial compass, showing whether you’re moving in the right direction.
Discovering your net worth can give you a much more complete picture of your financial health, which can be important in making any long-term plans with your money. Track it over time so that you can ensure you’re making financial decisions that work to your long-term benefit, not just the short-term.
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