Wealth Tip -The MOST Important Number to Know
The end of the year is probably one of the busier times, it is not called the crazy season for nothing, but if you look and prioritise, you will find a few pockets of quiet. Time where you can set out for reflecting and most importantly, understanding where you are RIGHT NOW!
When it comes to understanding your wealth and understanding whether you are improving it or losing it, there is no more important number to know than your NET WORTH!
Before we go into how you can easily calculate your net worth, it would be pretty poor of me not to go through a few housekeeping rules surrounding your net worth first.
Rules to understanding Net Worth
Your Net Worth does not define YOU and who YOU are!
Your net worth is just a number, and when it comes to understanding yourself, there is so much more to you than just a number. Therefore, when you go to calculate your net worth for the first time, you may feel nervous, or even ashamed, but I want you to take a deep breath and just relax.
YOU are not defined by a number, you are not a bad person for having too much wealth or too little. Our happiness is all based on perspective, some will be happier with more, and some with less. Hence, when you calculate your net worth, just remember, it is just a number.
2. Your Net Worth is a Metric
Your Net Worth is a great way to see where you have been and to measure your wealth building over the years. A great example of this would be if you sit down each year and calculate your net worth, you can see how much your wealth has been building over time.
An exceptionally good way to do this is by using a graph, once you have calculated your net worth over a few years. Check out the below for an example;
Liv and my own Net Worth over the last two and a half years, since I have been tracking it!
3. Leave a Legacy
Everyone should know how much they are worth, if not for the very reason that it will make leaving your legacy to your kids, grandkids or family members that much easier.
(Sure, if you are in high school and you have $5,000 to your name, you know what your net worth is straight away, as long as you have no car loans or debts to family members, you will just have $5,000 in net worth.)
Understanding your Net Worth is truly important, because when you make a will, you need to understand all the intricate details or your assets v. liabilities, not to mention insurances and a few other details. Your net worth will be the legacy you leave behind to loved ones, so why wouldn’t you want to know your Net Worth?
4. Do not compare your Net Worth to anyone else, you are playing a solo game!
I deliberately left out the $ figure in our own net worth graph above, so that you would not be able to compare, because there is no point leading your life in comparison to others. For your own happiness and sanity, it is best to be in the game without looking at the other players.
Social media has truly made our lives a lot more superficial and highlighted judgements, comparing to each other and even more dangerously, an us vs. them, or you vs. me, mentality.
We are all playing our own game, we are all just journeying through our lives at our own pace and you do not need to compare your own net worth to others. See an article that states the average net worth for your age? Don’t read it, we are all in this together, experiencing things in our own way, with our own history and perspectives.
The more you compare, the more likely you are to move into dangerous territory, like “keeping up with the Jones’s” territory, where you will take on more risks like getting personal loans and increase your liabilities. Of course, it all comes out in the wash, once you have calculated your net worth, you will know whether you are trying to “Keep up with the Jones’s”!
So, how do you calculate your Net Worth?
There are a heap of great Net Worth Calculators online, but I must say, one of the better and more simple ones has been created by the Australian Government.
The Money Smart : Net Worth Calculator
I have been using the Money Smart calculator for the last two and a half years to track our Net Worth and it has been working a treat, it is simple to use and will take you less than five minutes.
All you need to know is your bank balances, super balances, investing balances, loans and approximate value of your cars/boats/furniture etc.
During this day and age, you can come up with most of those figures at the click of a button and then once you have calculated your net worth, you can simply print the page or save it as a PDF on your computer like I do.
You have to do the work though or Hire a Financial Planner!
The hardest part of calculating your Net Worth comes down to discipline, doing it every year!
A lot of people would struggle to sit down at the end of the year or end of financial year and actually calculate their Net Worth. Which is why having someone to be accountable to is truly important, someone such as a Financial Planner who can do the calculations for your and review it once every year.
A Financial Planner will be able to reassure you and keep you on track with your strategies of wealth building, so that your Net Worth never goes backwards.
If you are one of those people that don’t like money or don’t like numbers, or you have a much more complex situation with investments, trusts, self-managed super funds etc. Hiring a Financial Planner will save you a whole heap of time, keep you accountable and make sure that you don’t so anything silly along the way that could affect your Net Worth.
Now you know what to do, so you just need to TAKE ACTION!
If you have any questions on calculating your Net Worth or need any help with it, please reach out to me - can do so via LinkedIn, Instagram, Facebook etc.
I would be more than happy to help where I can,
Until Next Time,
Take Back Control
