How to calculate your Net Worth
Purpose: To understand where we are financially at this exact moment.
I read a quote that said: “Every time you can explain something with numbers, that is a growth opportunity”, and if we want to improve our finances this year and going forward, the first stop I will make is understanding my Net Worth at least once or twice a year. Grab a cup of coffee because this will take more than a few minutes.
So, what is our Net Worth? When I was searching on the topic, a bunch of videos on what should be our Net Worth according to our age came up, but I think that is irrelevant because our situation is very different even if we are the same age. Net Worth has nothing to do with your income (kind of). People can make over 1 million a year and have a negative Net Worth.
Net Worth is the difference between our assets and our liabilities. In other words, is what you own (your possessions) minus what you owe (loans..).
For you to have an idea, I have listed most of our current assets and liabilities (I made up the numbers only), getting very personal here but is for you to have an idea how you can calculate your Net Worth.
ASSETS: BALANCE
| Checking Account $10,000.00
| Savings Account $10,000.00
| Retirement Account-ANA $10,000.00
| E*TRADE Account $10,000.00
| Home Market Value $10,000.00
| Toyota Rav4 $10,000.00
| Toyota Corolla $10,000.00
| GMC Van $10,000.00
| Retirement Acct-Daniel $10,000.00
| 529 Plan-Victoria $10,000.00
| 529 plan-Enzo $10,000.00
| TOTAL ASSETS $110,000.00
| LIABILITIES
| Home Mortgage ($5,000.00)
| Credit Card 1 ($5,000.00)
| Credit Card 2 ($5,000.00)
| Student Loan ($5,000.00)
| Business Credit Card ($5,000.00)
| TOTAL LIABILITIES ($25,000.00)
| Net Worth $85,000.00
From here you have a snapshot of your current situation and is a matter of prioritizing what we need to do first. The goal is to increase the last amount every year by converting your income into Assets. In my case, I want to paydown our credit cards as soon as possible so we can increase our savings to achieve our goals. Here are 5 tips to increase your Net Worth:
Pay your credit cards first - The interest rate on a credit card is insane nowadays (20%-30%). The way I do it is by paying the lowest balance first, so I get motivated to continue with the next lowest balance and so on until my list gets down to zero.
Live below your means- It’s easier said than done with everything so expensive but what has helped me is to have an automatic transfer each pay period to an account that is almost impossible to take my money out (IRA, ETRADE OR 401K). It will take some time to set up the first time but after that whatever money is left on my account, if free to use.
Invest the right way- Having all your money on your checking account is not a good idea. I’m a banker and the bank make a good amount of money out of YOUR money. For a small fee there are investment options at your nearest bank and you don’t have to deal with the headache where you want to invest in. IRAS, Roth IRAS, CDS are great options.
The earlier the better- I’m telling you; compound interest works wonders! You will thank me in the next 5 years.
Max out your Retirements Accounts: If your employer has a 401k the maximum you can contribute is $23k for 2023. If you don’t have this benefit, you can open an IRA and the maximum you can contribute is $6.5k. This money is NOT taxed and it can make a big difference on your tax liability.
As always, my mission is to educate you as much as possible in the money world while I also work on it myself. See you next week!
