The easiest way to gauge your financial progress is to calculate your net worth, if you’ve got the guts.
The biggest hurdle to calculating your net worth isn’t the math, it’s the fear. A good sign that you need to find out how your financial life is going is to measure your fear of doing so. If you’re terrified to balance your budget, it’s probably time to do so.
Figuring Your Net Worth
You can use a blanks sheet of paper or fire up your Excel spreadsheet.
- Balance of all checking and savings accounts
- Balance of all retirement accounts (IRAs, Roth IRA, 401K, 403b, etc…)
- Balance of your 1st, 2nd, 3rd mortgages (if you have any)
- Balance of any vehicles (car, boat, motorcycle, atv, RV, snowmobile, etc…)
- Balance of all other debts (student loan, credit cards, personal loans, 401K loans, etc…)
Do you know the value of your possessions? To get an accurate net worth you need to first have an accurate value tied to each item.
Let’s start with the house. Zillow and HomeGain are two great places to get started estimating your home’s value. Now, these sites don’t take into account any upgrades you might have made to the home that could increase it’s value, but they do steer you in the right direction.
Next on the ‘value list’ should be your cars and your toys. Use the Kelly Blue Book to check the value of any vehicles in your possession. For your other recreational vehicles, check websites and classifieds to see what similar makes and models are selling for.
- Add up all the assets you have. Assets can be checking/savings accounts, retirement accounts, value of your possessions, and anything else that can be sold for money. The results are the total value of your assets.
- Add up all of your liabilities. The liabilities are your mortgage(s), your vehicles (if you’re still making payments on them), and your debts.
- Next, subtract your liabilities total from the total value of your assets.
- The resulting number is YOUR NET WORTH
- No, your calculation isn’t wrong. If the number was negative you are “in debt”.
- If the number is negative you need to take a hard look at your situation. You can choose to remain in debt and hope that money will magically fall from the sky, or you can take action. The choice is up to you.
How To Get Your Net Worth Into the Black
There are many different ways to increase your net worth. The easiest way would be to win the lottery . . . fat chance, right? After reading J. Money’s article The $100 Scratch off Lottery Project I think I’ll leave the lottery to the “experts”.
Spend less than you make- Utilize a budget or some sort of budgeting software to help focus your efforts.
Increase your income- Get a second job, I recommend delivering pizzas. Sell items on Craigslist or Ebay. Start to do freelance work. Do anything that will bring more money into your household, just DO something.
Waiting for money to just appear at the door won’t work. If you need some ideas on ways to make more money, Phil from PTMoney has written a fabulous e-book called ’52 Ways to Make Extra Money’. If you sign up for his newsletter, you will get access to this free e-book.
Start a business- The internet is making it very easy to start a business online. I’m sure you can perform some Google searches and find all the resources you could ever imagine about the subject. Just this morning Erik over at MoneyCrashers wrote a post about how he started his own business How I Started A Side Business. There are countless stories around the blogging community that can act as a catalyst for you fire up your engine and get moving on making more money.
I’m sure you can think of other ways to help out your net worth, but the ones listed above will work quickly to put more money into your pocket. Yes, you could invest in the stock market and 401Ks; but if you are in debt, the single biggest action you can take is to get that number into the positive. Without debt, you are in control of your money and only then can you build real wealth.