If you are reading this post in the hopes of “knowing your worth” as it relates to your moral character, societal contributions, or, more literally, how much you can get for your plasma, I am sorry to disappoint. But before you click away from this page, this article may give you something more valuable: education on the calculation and application of your net worth. It might not sound exciting, but this could help you focus on goals and live your life to the fullest, and what could be more thrilling than that?
Let's start with the definition: Assets - Liabilities = Net Worth. In other words, take what you own and subtract what you owe to determine your net worth. This number serves as one of the primary measures of your financial strength and is laid out on a Net Worth Statement or Balance Sheet.
Establishing a Net Worth Statement provides a foundation from which to make informed financial decisions. It can provide clarity regarding your liquidity (how quickly you can turn your assets to cash), tax diversification, and the types of debt you may be carrying. Distilling these details into your overall net worth and tracking it over time can also serve as a report card for your financial decisions and investment performance. In my experience, having this information available in a single place provides peace of mind and can help uncover areas to focus on in the short and long term.
Say you want to buy a house (or fund a child’s future education, travel internationally in retirement, or make a large donation to a charitable cause close to your heart). A one-page Net Worth Statement can help you clearly see the ways you might adjust your finances to reach that goal - such as paying off credit card debt, adjusting how much cash you have on hand, investing more into a particular account, or something else entirely.
Gathering all of this information might feel daunting, but it gets easier over time and only needs to be updated periodically (every 6 months to 1 year is plenty for most people). There are tons of templates and programs available online to help you get started, but even something as simple as a piece of paper is an excellent place to start.
With just a bit of effort, you’ll be one step closer to making those goals a reality!
Written by Alex Richani, CFP® and Libby Boehne