Personal Finance,  Saving

Starting Out – Calculate Your Net Worth

Investing and saving can be a daunting task. There are so many options it can make your head spin. Roth IRA’s, traditional IRA’s, 401k’s, annuities, 529 plans, CD’s, and countless other options abound. Where do you even start? Well for one thing, it is best to take things like this in small, digestible, steps. Build your understanding, bit by bit, and soon you will be in full control of your financial future. This blog is designed to lead you from lost, to mastering of your money and financial future. Just by reading this far you deserve a small pat on the back (not too big there, you are still just starting) just for trying to find more information.

The first step to any good financial plan is to assess your current situation and see where you stand. Get out all those bank statements, and prepare yourself to look at your most recent credit card statement; this is going to get real. Start by writing down all the liquid assets you have. This would be anything of value that is cash, or can be easily turned into cash. Think of things like stock, bonds, or your savings and checking account. Your “My Little Pony” trading cards and Beanie Baby collections will have to sit this round out. Next, the scary part, liabilities. Don’t worry, you can get through this! A liability is anything you owe someone else. Think credit card debt, student loans, mortgage debt and any bills or payments you make on anything regularly that is not a utility.

Now, the fun part. Take the number you calculated for your assets and subtract your liabilities. The result will be either positive or negative. If it is positive, congratulations, you have a positive net worth. If it is a negative number, never fear, the next couple articles will get you started on a path to eliminating your debt and starting down a path to a prosperous financial future and maybe even financial independence; not having to rely on a job for your living expenses.

So why the focus on net worth?  Well net worth is what will get us where we want to go.  It will determine when you can retire and how much you can safely spend in a given year.  You can increase your net worth in two ways,  saving and investing.  When you start, nearly everyone will be increasing their net worth by saving more than they make.  But eventually, your net worth will grow to a point where the investment side will contribute meaningfully or possibly exceed the money you bring in from working.

Building your net worth by focusing on both the savings and investing front is the key.   Increasing your savings rate and getting the best returns you can will speed up the process of increasing your net worth.    We plan on sharing a lot of great ideas for DIY projects, savings strategies, investment ideas, and many other topics, all focused on building your net worth.