What am I worth?
You often read in the media about someone who is a millionaire or maybe even a billionaire. What does this mean and is this important or not?
Your net worth is the difference between your assets (what you own) and your liabilities (what you owe). Your net worth is also called your Equity.
Why is this important?
In a previous blog, I talked about the need to track and monitor your income, expenses and free cash flow. Your net worth or equity is the end result of this and how well you have done. If you spend less than you earn then your net worth will increase but conversely if you spend more than you earn your net worth will reduce.
The other important thing with your net worth is that this can be used to grow your assets by leverage - that is for another day.
How do I calculate my Net Worth?
There are two things you need to calculate to determine your net worth:
Assets
These are the things you own and would include:
Your home
Cash and Deposits
Shares or Equities
Bonus Bonds
Kiwisaver Account
Chattels such as clothes, furniture and sports equipment
Insurance policies
Other assets such as gold, art or antiques
Liabilities
This is what you owe and include:
Bank loans
Student loans
Credit card debt
Taxes
The difference between these two is your net worth. I also refer to this as your Empire Statement……..
Golden Rules in determining your Net Worth
Your assets should be valued at the current realistic sale price - what you would be able to sell them for at the date you prepare the summary.
Do not be tempted to over value your assets. You do not need to get a valuation - make your best estimate.
Prepare a list of all your chattels. You will be surprised how much you have and it is very good for insurance purposes.
Do not calculate your net worth too often. Every 6 months is more than enough. Assets go up and down in value all the time and you are trying to find a trend over the medium to long term.
Include ALL of your liabilities even if the amount is in dispute.
Use a spreadsheet like Excel to keep track of your net worth over time.
So, what is your Net Worth?
James
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