What Is Your Net Worth?

All of us get a little lost from time to time. We need something to remind us where we are so we can get where we want to go.?Your net worth is one of the best ways to see where you stand financially.?That number essentially says, "You are here," and it can help you get back on track with wealth-building.

So, I have to ask:?Do you know?your?net worth??Unfortunately, I’ve met with too many folks who had no idea.

The good news is, figuring out your net worth isn’t rocket science—it’s a simple formula! You just need to spend the time it takes getting the information you need to run the numbers.

What Your Net Worth Is—And What It Isn’t

Your net worth is what you?own?minus what you?owe. It’s the total value of everything you own—including your house, cars, investments, and cash—minus your liabilities (debts).

My team and I just made it easier for you to find that number with my new net-worth calculator. By answering a few simple questions, you can find out your net worth in five minutes; that’s less time than it takes to get your morning coffee!

But before I go any further, I want to bust some myths and misconceptions people have about net worth.

First of all, your net worth isn’t just the stuff you have.?You could have a million dollars in cash and investments, but if you also have a million dollars tied up in mortgages, credit card debt and student loans, you’re not a millionaire—you’re broke!

And second, just because someone has a high income doesn’t mean they have a high net worth.?Your net worth is not your income!

There’s a lie in our culture that says you have to earn a large income in order to build wealth. That’s simply not true. A six-figure salary might help, but it doesn’t necessarily lead to a high net worth. What’s important is what you do with your salary.

Here’s a hint: It doesn’t matter what your income is, what your career is, or what kind of degree you have—anyone?can become a millionaire over time. That includes?you!

How to Calculate Your Net Worth

Meet Mariyam. Mariyam’s been doing his own thing for a while, but she wakes up one day and realizes he’s completely lost. He has?no clue?where she stands financially! She decides she wants to get a better handle on his finances. The first step is to figure out where she is; she needs to know her net worth.

Just like Mariyam,?you?can calculate net worth in three easy steps.

Step 1: Add Up Your Assets (What You Own)

Again, your assets include the stuff you own that has monetary value attached to them.

There are two types of assets: liquid and illiquid. A liquid asset is basically cash that’s easily available to you, like money in a money market account. An illiquid asset, on the other hand, can’t be converted to cash quickly. That would be something like a piece of land or a car. Both types of assets are part of your net-worth equation.

The first step to figuring out your net worth is to make a list of what you own. Here are some of the things in your life that qualify as assets:

• Cash: savings and checking accounts
• Retirement accounts and other investments
• Real estate: home equity and rental properties
• Vehicles: cars, trucks, and bikes
• Contents of your home: jewelry, art, collector’s items, etc.

So, let’s take a look at Mariyam’s assets. Remember, this is?what she owns:

• Home valued at?$350,000
• Investment with?$50,000
• Car worth?$10,000
• Savings account balance of?$5,000
• Checking account balance of?$10,000

When she adds up the value of these items, Mariyam learns she has?$425,000?in total assets.

Step 2: Add Up Your Liabilities (What You Owe)

Here comes the not-so-fun part: adding up all your liabilities. These are all the debts and outstanding payments you haven’t eliminated. Hopefully, all your debts equal?zero. But if that’s not the case, it’s time to get them all down on paper.

Here are some of the most common forms of consumer debt:

• Credit cards
• Student loans
• Mortgages
• Car loans
• Medical bills

Mariyam has been piling up some debt over the years. Here’s?what she owes:

• Credit card debt totaling?$10,000
• Student loan debt of?$5,000
• Mortgage balance of?$75,000
• Car loan of?$10,000
• Medical bills equaling?$10,000

That might have been a little painful. She listed all of his liabilities, which add up to?$110,000.

Now Mariyam’s ready for the final step.

Step 3: Subtract Your Liabilities From Your Assets

You know the total value of your assets and how much debt you’ve accumulated. Now all you have to do is subtract! Here’s the formula:

Total Assets - Total Liabilities = Net Worth

Mariyam subtracts her liabilities from her assets to get her total net worth, and she sees that her current net worth is?$315,000.

$425,000 (Assets) - $110,000 (Liabilities) = $315,000 (Net Worth)

3 Reasons You Need to Know Your Net Worth

Remember, your net worth shows you where you are financially. But I don’t just want you to know where you are. I want you to know where you’re going. It’s time to develop a plan to get there! Net worth doesn’t have to be confusing. I’ve created a simple?Net Worth Calculator?to help you see where you stand in a matter of minutes!

Let’s also unpack why it’s so important to know what your net worth is and how you can use it to propel you toward your financial goals.

1. Your Net Worth Shows Where You Are

Are you saving enough for retirement? Do you have money in your savings account to cover an emergency? What debts do you need to tackle? Your net worth can help you answer these questions. It gives you a clear picture of your current situation.

I want you to hear me: You may not like where you stand, and that’s okay. If you’re lagging behind in your wealth-building, you can still turn things around. You’re never out of the game unless you quit. Don’t quit; push forward. Stay focused, keep your eye on the next goal in front of you, and find ways to make progress.

2. Your Net Worth Shows What Needs to Be Fixed

Ideally, you want your debts to equal a big, fat zero. But if you do have debt, finding your net worth forces you to see what you’re up against. You can’t fix a problem you haven’t identified.

To say goodbye to debt, use the debt snowball method. List your debts from smallest to largest, and tackle them as quickly as possible. Getting rid of your debt won’t just free up your income; it’ll also raise your net worth!

I want you to get mad at your debt. You might need to get rid of the truck or sell some stuff. Do whatever it takes to get debt out of your life!

If you’ve gotten rid of all your debt except for your mortgage, you’re doing an awesome job. But don’t take your foot off the gas now! Can you make a few extra mortgage payments each year to pay off your house even faster? Imagine how much you could invest for the future with no debt and no more house payments!

3. Your Net Worth Shows How Far You Need to Go

I always tell folks that retirement is not an age—it’s a financial number. I want you to know how much money you need to live out your retirement dream. If your net worth shows you where you are in the race, then your can represents the finish line.

This tool will help you find out what your number is and how much you need to invest each month in order to get there by the time you want to retire. You can even adjust numbers here and there to see what would happen if you saved more or spent less.

If you’re ahead of the game, keep doing what you’re doing and build on the momentum you already have. If you’re behind, it’s time to get serious! No matter where you are, it’s never too late to build wealth and reach your financial goals!