Lining Up Your Stacks
That’s my fancy way of saying – take a second to calculate your Net Worth.
Your Net Worth is simply what is owned minus what is owed. Or in fancy finance terms: assets minus liabilities.
Your assets (what you own) are things like:
- The value of your art collection
- The value of your shoe/purse/car collection
- The money you have in your bank accounts
- Anything you may have invested in anything else
- The “equity” in your home
- The equity you have in your home is that amount of cash you’d have in your pocket if you sold it. This means it’s the value of your home today minus anything you still owe to the bank (or anyone else).
- Basically, anything you own that can be sold for money today.
Your liabilities (what you owe) are:
- Any debt you have of any kind.
- This includes any amounts owed to banks, credit card companies, people, or loan issuers.
I want to be clear here: If you’re renting an apartment or leasing a car. These are neither assets or liabilities. There’s no ownership occurring. These are simply expenses. They provide no value other than your ability to use them but they are NOT an asset.
If your assets are greater than your liabilities- you have a positive net worth. If your liabilities are greater than our assets – you have a negative net worth.
Why is it important to know your Net Worth?
There are many reasons but the two most important ones are rather simple:
- You eventually want to have a very high positive net worth. This would mean that your assets are higher than your liabilities by a significant amount and therefore can presumably be liquidated over time to support your lifestyle.
- You need to know what direction you’re heading in so you can begin to prioritize your spending.
I’m going to touch on the first one in a later post in great detail so today let me focus on the second one.
Once you know what your spending is (please see last week’s post), you know what your priorities are. Are you actively supporting Grubhub and Uber or are you working on accumulating assets? If it’s the first of these two and you still have credit card debt, this may be an opportunity to make some changes. Take some time and figure out how you can start moving towards a positive Net Worth. Could you save more? Would it be prudent to realign your spending? Perhaps you can cancel cable for a few months and pay off some of your debt to get you a bit closer to your goals.
Huh Goals? Yes… Money Goals! Absolutely! What are yours?