Do You Know Your Net Worth?
“Most people have it wrong about wealth….Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.” ~Millionaire Next Door
Yes, calculating your net worth has nothing to do with how much money you make each year (other than to highlight that your net worth isn’t as high as it should be considering income). Figuring out your net worth is fairly simple. Divide your piece of paper similar to this net worth worksheet. List every single debt: credit card debt, auto loan balance, student loan total debt, mortgage amount, 401K loans, family loans, etc. on the right. On the left side list your assets: checking, savings, house value, car values, each retirement account, etc. Total each side. Subtract your debts from your assets. That is you net worth.
Take special note of “liquid assets.” Money that is not tied up in property or cars (a car is a depreciating asset). Too many people think they have a high net worth because they own a house in California that has tripled in value, but there should also be money assets that you can pull from when it’s time to retire– without selling your house and moving to a mobile home. Unless that’s your dream, of course.
There are a lot of rich pretenders. They spend on prestige products and services but are two or maybe even one paycheck away from financial disaster. But the truly wealthy live below their means and consistently sock money away for their next car, their kids’ college, and their retirement. It’s about regularly–even monthly–planning your life and being a good steward over your money. Be wise because “only when the tide goes out do you discover who’s been swimming naked” (Warren Buffet). Don’t be caught naked. Be caught in a cute swimsuit that you budgeted for and a large life preserver in the bank.
Live simply, to have more, to do great things.sm
FiscalGirl Challenge: Sit down this weekend and figure out your net worth. Do it each year at the same time. Date and save each one and compare year over year to ensure that your net worth is increasing.