When setting personal financial goals, knowing where you currently stand will help to determine where you want to be down the road and the best route to get there. One very revealing measure of financial health is your net worth. This is a very basic concept, but too many have no idea what their net worth actually is. Put simply, its what you own minus what you owe.
To calculate your net worth, follow these 3 easy steps:
1. Add up all your assets. Assets are the items you own that are of value such as your checking, savings and retirement accounts, your home, car and even personal items (furniture, jewelry, etc).
2. Next, add up your liabilities. Your liabilities are your debts, or financial obligations. Some examples of liabilities are credit card debts, student loans or the mortgage on your house. Any time you owe someone money, you’ve incurred a liability.
3. Subtract your liabilities from your assets. The amount you are left with is called your net worth .
With rising education costs and plummeting home values during the last recession, many individuals and families have found themselves in a situation in which they have a negative net worth, meaning they owe more than they own . The goal, of course, is to accumulate more assets while eliminating liabilities. Setting savings and debt reduction goals will help you get there. Tracking your net worth is often a great motivator in reaching financial goals. For assistance, try using FINRA’s Net Worth Worksheet .