What Is Your Net Worth?
According to Bryan Hawker, your net worth constitutes everything you own (assets) minus all of your debts (liabilities). Your assets include your cash, investments, home, cars or anything else of value. Liabilities includes everything that you owe on those assets such as auto loan, mortgage, credit card or student loan debt.
Your net worth is basically a measure of your overall financial standing, because it amounts to what you would have left over if you sold all of your assets today to pay off all of your debt. Every financial decision you make needs to be aimed at increasing your net worth. Continuously work on increasing assets while decreasing liabilities, says Bryan Hawker.
To calculate your net worth visit Bryan Hawker's Net Worth Calculator
Bryan Hawker on Net Worth Implications in Practice
What about negative net worth?
Some people get worried when they calculate their net worth and discover that it’s negative, says Bryan Hawker. This is oftentimes a new career individual just out of college with a high amount of student loan debt and also an expensive auto loan on a quickly depreciating vehicle. Why do you have a negative net worth? You simply have not earned enough nor invested enough yet to outweigh the debt ratio. This can also be due to taking on too much debt such as credit card bills and other loans and not paying them down quick enough. Don’t stress. Just come up with a detailed plan to budget so that you pay down the debt and eventually you will be in the black again.
How can I increase my net worth?
Whenever you pay down your debt or the value of one of your assets grow, your overall net worth will increase. So to increase your net worth, work on a plan to pay down your debt, save and invest your funds and reduce your spending. If you are a home owner, paying on your mortgage while seeing your property value rise can boost both sides of your asset/debt ledger.
Conversely, your net worth decreases whenever you take on more debt with nothing to show for it. Pay close attention to your spending habits, because whenever you spend money on frivolous items your net worth will go down says Bryan Hawker.
How often should I recalculate my net worth?
According to Bryan Hawker, it is a good practice to calculate your net worth at the end of each month. This way you can see if you are on track at increasing your net worth from month to month. Your goal obviously is to pay less each month than that amount you bring in. Always use any excess no matter how big or small to pay down those debts and sock away fund in savings.
Bryan Hawker Net Worth Summary
You should now have a better understanding of net worth and how to calculate it. If you would like a great tool to help you keep track of your net worth and finances online visit like Mint.com. Another simple way to keep track is by creating a Google spreadsheet. You could set up columns for debts and assets that you can update from month to month. The bottom line is to come up with a game plan to track your net worth. Keep track of debts and assets so that over time you reach your goal of ever increasing net worth and ultimately financial security.
Source: The Simple Dollar
Using a personal balance sheet
Start with balances as of a single date. List debts beside assets and distinguish readily available funds from property or other holdings that may take time to sell. Repeating the exercise periodically helps show which changes came from debt repayment and which came from new valuations.
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Building a personal balance sheet
Start with assets and liabilities on a single date. Record bank and loan balances from statements and identify estimates for items such as property. Keeping the valuation date and source next to each figure makes it easier to update the sheet without confusing current balances with older estimates.
For example, if assets total $300,000 and liabilities total $180,000, net worth is $120,000. Paying down $5,000 of debt from newly earned income changes the balance sheet differently from paying it with $5,000 of existing savings. Track both sides so the change is clear.
Separating cash flow from net worth
Paying a loan with existing savings reduces cash and debt by the same amount before fees. The total net worth stays the same, even though the amount of cash available for an emergency falls.