Do you know how much you are worth? It sounds so cold and business-like to ask such a question, but there are definitely important reasons as to why knowing your net worth is important.
I’m a school teacher, so pardon me as I indulge in me-friendly metaphors. But I think knowing your net worth is like having a report card. It’s an overview of your entire financial situation without having to go digging and rifling through pieces of paper. After all, we seem to like being able to quantify things, to analyze data, and to compare our progress and growth from year to year, so what better way than with your net worth data?
But why exactly do we need to know this magic figure?
- It gives you an overall picture as to how deep in debt you are, or how much in the green you might be. So you can potentially get a wake up call and rethink that that BMW, or you might decide you deserve a treat after being frugal forever.
- With a few years of data, you will be able to track your progress, and keep an accurate sense of your wealth.
- It avoids an over-emphasis on asset value alone. Some folks may feel secured knowing that they have $250,000 in the bank without taking into account that they have $240,000 in debt and it creates a false sense of security.
It basically all comes down to the fact that knowing your net worth clarifies things. There really isn’t any negative to knowing what your net worth is, so why not figure it out? The formula to knowing your net worth is relatively easy. It’s all your assets (including your Super / 401k) minus your liabilities such as mortgage, debt, loans etc. Simply put, it’s:
|Net worth = Assets – Liabilities|
That seems straightforward enough! So let’s put it to the test with the ASIC Moneysmart Net worth Calculator.
$403, 346 – Well, at least it’s not negative! I did calculate my net worth 2 years ago, but I didn’t record it down so I don’t know how much my net worth has grown, if any. There’s not much else I can do with this figure right now except to record it down and compare it the next time I look at it again. Perhaps in 6 months time?