About four and a half years ago, my husband and I took a look into what I’ll call our “Financial Mirror” by calculating our Net Worth. Our “Financial Mirror” was a true reflection of ALL financial decisions we’d made up until that point in our life. Needless to say, we were very disappointed. Not only were we not where we were supposed to be, but we were a little behind. Why? We were top heavy.
What do I mean by top heavy? Take a look at the picture of the pyramid on the right. It has a great foundation because it is bottom heavy. The pyramid’s size decreases with each step up. If you were to turn the pyramid upside down, it would be top heavy and unable to stand. Which could be an example of anyone’s financial position. If your position is currently top heavy, it will not be able to stand and will collapse at anytime. Continue reading to find out how to have a great foundation…
How To Determine Your Net Worth
Your net worth is a snapshot of your financial position at a particular point and time. It is a great practice to calculate your net worth at least once a year.
Calculating your net worth is a very simple process. It is determined by subtracting your liabilities from your assets as indicated below:
Net Worth = Assets – Liabilities
Let’s cover the definitions of assets and liabilities.
Assets – everything you own that has a dollar value. Examples include: Cash (checking/savings accounts, CDs, etc), automobiles, boats, etc. (estimate value at nada.com), home (estimate value at zillow.com), furniture, appliances, clothing, jewelry, stocks, bonds, IRAs, etc.
Liabilities – your debts. The amount you owe to others. Examples can include: personal loans to others, credit balances, unpaid taxes, past due bills, auto loans, boat loans, home mortgages, student loans, etc.
Now let’s take a look in your financial mirror. Grab a piece of paper and calculate a rough estimate of your net worth. Where do you stand? To get an estimate of what your net worth should be, click here for a great tool at CNN Money that can be used. Entering your age as well as your income will give you an rough calculation of how far ahead or behind you are.
So, create new goals today. Write them down and keep them at the forefront of all your purchasing decisions. Let’s see what you can accomplish
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Respond below with any concerns or opinions.
Wishing you Success,
Patrenia
