How much are you worth?

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5 June 2018
Do you know how much you are worth?

 


A good starting point to help you take charge of your finances is to work out what your net worth is.

Figuring out your net worth can easily be done by following three basic steps:

Step 1: Make a list of all your assets (things you own)

Assets are things that you physically own that have a monetary value. Assets usually increase in value over time and are items that you want to gather to help you become financially free.  

Assets include things like your house, your investments such as shares and retirement annuities, cash in the bank, stamp collections, art collections and even furniture.

You could also include the value of your car, but remember that a car is a depleting asset. This means that the value decreases each year, as opposed to other assets such as your house, which generally should keep increasing in value.

Make a list of all your assets and how much they are worth today, then add them up to arrive at one total amount.

Step 2: Make a list of all your liabilities (things you owe others)

Liabilities are exactly opposite of assets and are usually amounts that you owe other people or places like banks.

A home loan, a car loan, credit card debt or a store account are generally known as liabilities, also known as debt.

Liabilities can take away from your overall wealth and can decrease your net worth over time if not carefully managed.

Make a list of all your liabilities and how much you owe others today, then add them all up to arrive at a total amount.

Step 3: Deduct what you owe from what you own (your net worth)

The final step in working out how much you are worth is simply taking the total of your assets and deducting the total of your liabilities.

What remains is how much you are worth – your net worth.

If you were to convert the above into a simple formula it looks like this:

Assets – Liabilities = Your Net Worth

Hopefully, you have more assets than liabilities. If you don’t, it is probably time to plan to reduce debt, start saving and gather some assets. 

So why is it important to know how much you are worth?

Knowing your net worth is a great starting point for planning your financial future and is just as important as going to the doctor for a checkup to find out the status of your health.

If you are sick you need medicine to restore your health. The same is true for your finances. Finding out whether you are financially healthy or not starts by knowing how much you are worth.

If your liabilities are more than your assets, then you could be stuck in a debt trap and you should start getting rid of debt (liabilities) and build up assets.

Saving is the most powerful way to achieve financial freedom and building up assets is something that we at OUTvest strongly believe in.

Financial freedom means the power and ability to live free from debt and having assets that are worth more than your liabilities. 

Knowing what needs to be done to get your savings on track to a more secure financial future is easy if you know your net worth.

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