Day #2, Do You Know How Much You Are Worth?

Hello,

 

It’s Mike from Fabulously Broke, I hope you are doing well. Are you ready for your Day #2 lesson to control your cash?

 

Day #2: Find Out How Much You Are Worth

 

After finding out where you spend your money (Day #1), you will take a deeper look at your financial situation and find out about your net worth. Knowing your net worth is very important as it will serve many purposes such as:


  •   Apply for a loan and get approved

  •   Evaluate your saving capacity and achieve your goals

  •   Raise a red flag when you spend too much

  •   Be proud of yourself and your progress!

 


What’s The Next Thing to Do: Calculate Your Net Worth

 

Calculating your net worth will literally take 15 minutes or less. All you need is a calculator and a piece of paper to write down your assets and liabilities. Here’s the simple formula:


ASSETS – LIABILITIES = NET WORTH

 

In the assets, you should include:


  •   Bank
    accounts (savings, emergency funds, checking bank account, etc)

  •   
    Investments
    (retirement accounts such as 401(k) (US) or RRSP (CAN))

  •   Properties
    (main residence, condo, rental property)

  •   Cars (don’t be too generous on the value of your car, the value drops pretty fast)

 

As for the liabilities, you should include:


  •   Credit cards

  •   Loans (student loans, personal loans, car loans, etc.)

  •   Mortgages

  •   Lines of credit


Here’s an example from my net worth calculation at the age of 28:

Assets:


ASSETS


AMOUNT


CHECKING ACCOUNT


$    1,000


EMPLOYER STOCK ACCOUNT


$    5,332


INVESTMENT ACCOUNT

 $
23,685


PENSION PLAN

 $
12,000


HOME


$338,640


ONLINE COMPANY SHARES

 $
75,000


MAZDA TRIBUTE

 $
21,700


MAZDA RX-8


$    9,200


TOTAL



$486,557

 

Liabilities:


LIABILITIES


AMOUNT


CREDIT CARD

 $
11,779


LINE OF CREDIT

 $
19,348


MORTGAGE


$261,214

CAR
LOAN

 $
21,700


PERSONAL LOAN


$    9,500



TOTAL

 $323,541

 



Net Worth: $486,557 – $323,541 = $163,016

 

As you can see, , a simple Excel spreadsheet can do the job quite easily. I suggest you build a “template” and update your net worth on a monthly basis. This is an easy way to see if you are spending more than you earn. Be careful in evaluating “non-liquid” assets such as your house and your cars. Try to be as conservative as possible. You can do it by using the inflation rate to increase your house value and use Kelley Blue Book (US) or the Canadian Black Book(CDN) to determine your car value. They are both free resources that will give you a pretty good idea of how much your vehicle worth. In the end, try to focus on your savings and investment rather than your house and cars to build your net worth. Furniture, jewels, paintings are nice to have but should not count in your net worth as well.

 


Quick Tip:
 If you complete your Financial Situation with Mint or with Quicken, their software will calculate your net worth instantly and refresh it each time you login! Therefore, you won’t even have to spend more than 2 minutes to know how much you are worth.

 

Do you want to know if you are on the right path according to your age? Find the answer to this question with the article What Should Your Net Worth Be?

 

Get ready for tomorrow: Day #3: Let’s Find Some Cash! (I’m sure you’ll like this one!)

 

Cheers,

 

Mike


www.FabulouslyBroke.com

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.