Figuring out Your Net Worth, the First Step to Reaching Your Financial Goals
Last week we wrote and article about focusing on the future and saving for retirement. In this week's article we'll talk about actually sitting down and figuring out your net worth, which is the biggest hurdle for most people. The first place to start is by looking at your current financial status - taking a tally of your assets and liabilities. Your current financial status has the most bearing on your ability to reach your goals and when.
Start by calculating your net worth, which is more involved than you may think it is. Your net worth is determined by calculating your assets minus what you owe (your liabilities). This will give you look into what you're actually worth at this point but be prepared - it might be shocking to you when you add up all of your liabilities.
Add up your net worth in your checking accounts, savings accounts, certificates of deposit or money market accounts. Add any stock accounts, mutual fund accounts and any retirement accounts, IRA, 401k, etc. Add the value of your home and the value of your vehicles. The value of your home will always be subjective, but to get an approximate value you can have an appraisal done but we don't recommend spending the money. To determine the value of your vehicles use kellybluebook.com.
Another place to look is the cash value of any insurance polices. The cash value is the current value of the life insurance policy, not the death benefit. Now that you have all your assets tallied up you can focus on your debt. Oh, by the way a good way to add everything up is by using a spreadsheet.
Your biggest liabilities will likely be either your mortgage if you own a home or student loans. Now add up your auto loans, credit card debt and any other outstanding loans you have. Now that you have all your liabilities tallied up you subtract your liabilities from your assets and this will give you your net worth.
Hopefully your net worth is positive at this point or heading into the positive direction. Every month your net worth will change, adding and subtracting from the asset and liability columns. Having a strong net worth now or in the near future will help you succeed in reaching your retirement goals.
When you first figure out your net worth it is also a good time to reallocate money in your accounts. You can easily do this by checking your current savings rates, CD rates or deposit rates are. Then check and see what the best savings rates or other deposit rates are Check to see what you to higher yielding deposit accounts.
Do the same for your investment accounts in stock accounts and mutual funds. If a particular stock has increased in value you might have to sell some of that stock to have a better balanced portfolio. Equity prices have gone up 100 percent over the past four years so if you haven't checked on your account in recent years you might be overweight in one or more stocks.
In next week's article we will talk about envisioning your retirement. This is the fun part, thinking about when and where you want to retire. On a beach, on a golf course, in a small town, or where ever you envision yourself retiring.
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