Your net worth. It can be frightening to consider your net worth, but it is necessary to understand your finances.
It took me two years to understand my networth or to have the courage to do some research. It’s important to know your net worth before doing anything else.
Before we continue, it’s important to understand net worth. I will share some stats so you can get a clearer picture.
What does net worth mean?
Net worth is a simple concept, but it’s often misunderstood. It is the difference between your assets and liabilities. This can also be expressed as the value of all your assets minus any debts.
Add up all your assets to determine your net worth. Add the total of all your debts. Subtract the assets from your debts.
It might make you cringe to see a negative figure, but it is important for your personal financial journey.
Assets include:
You can cash in your savings or checking account
Stock investments, such as 401ks and IRAs
The market value of a rental property or a house
Own a car (if you currently own one)
Artwork, jewelry, etc.
Liabilities include:
Student Loans
Charge card debt
Mortgages on property
Back Taxes
Medical Bills
You may have to do a lot more math in each section, even though the math itself isn’t difficult. Personal Capital is a free, handy tool. You can connect your accounts, fill in some information, and it will calculate net worth, budgeting investments, etc. It makes life much easier.
How your Personal Capital dashboard could look. If you’re interested, click the image to start.
Why You Should Face Your Net Worth, No Matter How Scary It Sounds.
Average Net Worth of Millennials
Finances have taken over my life since I turned 30 a few short months ago. Many reports show the average net worth of Americans. I chose to focus on my generation, the millennials.
The College Investor is one of my favorite finance websites (besides mine, of course). The article talked about the networth of Millennials. I grabbed a screenshot of the networth by age of my generation.
Millennial Net Worth
It makes sense, given the student debt and stagnant wages. Add to that credit card debt or homeowner debt. If you calculated your net worth, and were not happy with the results, then you likely fall within the national average. So fear not, as you are not alone.
Why you need to know your net worth before developing a financial plan
Knowing your exact net worth will let you know where you are at any given age. The number can be frightening and discouraging, but it’s important.
You can accept it once you’ve seen it. It doesn’t really matter if it is good or bad because you have to face it.
Your net worth is a good indicator of your financial health.
If you are unsure whether you have a positive or negative net worth, the number itself should motivate you to change your financial situation or, if you prefer, take it to the next step.
My net worth is just above $60,000.
It was certainly a relief to be in front of the curve but it also made me want more to achieve six figures. To get the most out of my investment, I needed to cut down on my unnecessary spending and increase my savings rate.
I hope and aim to reach $100,000 by the end of 2018. I will keep you updated on my progress.
You can use it to determine your financial priorities
You can easily make decisions that aren’t the best for you if you go into your personal finances without doing any research. Personal Capital allows you to see all of your assets and liabilities in one place.
You can prioritize your efforts based on this information to get your net worth back on track. Perhaps you can put more money into debt to pay it off faster or increase your salary to allow for greater savings.
Instead of putting more money on my remaining student loan, I focused on increasing my savings and my investment account, including my Roth IRA.
My main priority hasn’t been to pay off my debts on time. I will, however, occasionally make extra payments. My net worth has increased significantly in the past few months by doing this.
Your net worth helps you to see how much money you spend.
How many times did you almost buy something but then decide not to? You may think, ‘I have the money. It’s something that I want. I haven’t been spending much lately.’
You’ve likely been spending more than you should on things that were probably unnecessary. You can track your net worth using software such as Personal Capital.
It was for me.
While I don’t buy myself much, like clothes, entertainment etc. I am a foodie who is obsessed with Mexican food. My net worth and spending habits showed me exactly how much money I spend on food each week. This could have been invested instead. I don’t believe I would have realized how much I overspent without Personal Capital’s emails and the numbers.
It’s surprising how much money you waste on temporary pleasures that could better be used to achieve your financial goals.
Final Thoughts
It is important to know your net worth.
At first I was apprehensive about checking, and I even feared seeing the results once I had entered all the information. By the time I checked, I was already in a pretty good shape. It didn’t matter if it was a much higher number, the fact was that something had to be done.
You can start today if you’re about to take control of your finances, or if you have already started but you haven’t checked your networth yet. Sit down and crunch the numbers, whether you use a spreadsheet, Personal Capital or Mint.
You’ll thank yourself in the future and set yourself up to achieve financial success.
