So, you’ve been on a journey towards managing your finances better and you’re making headway in sticking to a monthly budget. Well done! That’s a key first step. But it’s not the only practice you need to implement. In fact, there are many avenues that need to be taken, and ultimately merged, in order to achieve financial freedom.
One such particularly important avenue is determining your net worth. While many assume that you only need to make this calculation closer to retirement or when you’re setting up your will, the truth is that establishing your current net worth as well as tracking that worth over time can really help you gain financial ground.
At its most basic, your net worth provides you with insight into your exact current financial situation. To calculate your net worth, you first add up all your income – wages, fixed assets, tax returns, etc. You then add up all your expenses – monthly recurrences, personal credit card debt, load repayments, etc. From there, you establish your net worth by subtracting your expense total from your income total.
This calculation is helpful on two fronts. First, if you find your net worth is negative or below where it should be, it can spur you on to make necessary changes. Second, if you find your net worth is positive and well in the range of where it should be, it can relieve some of the stress you might be feeling about reaching your goals. You can also confirm what you need to keep doing to stay on target.
The next step is to then track net worth to ensure that you’re either improving or maintaining this calculation over time. Having a good understanding of your net worth at any given time can significantly assist you in meeting your financial goals.