Last week we started getting ready for your debt free journey. We discussed the importance of getting your spouse on board (if you have one) and promising yourself that you are done with debt.
Now we are ready to jump in to assessing your current financial picture. You need to know where you are starting from in order to begin your journey.
Knowing is half the battle. Every subsequent step will build on this foundation of knowing and understanding your true economic state, whether it is good or in need of some help.
We have all made unwise financial choices before so there is no judging going on here. We are here to examine the facts as they are and develop a plan that you can easily implement!
Calculating your Net Worth will clarify your current financial picture. If you have never done it before or if it has been a while, it will likely be an eye-opening process. You will be able to see immediately if you are in the red or if you are better off than you thought.
Once you have a clear picture of your financial situation, use the numbers as motivation to make the good numbers go up and the not-so-good numbers go down.
Otherwise, take out a piece of paper and a pen or open your spreadsheet application of choice.
To determine your Net Worth, follow these six simple steps:
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Start by writing out all of your assets. This will include everything you own, such as your bank accounts, retirement accounts, house, car, cash, etc. Don’t forget about furniture, jewelry, antiques, and anything else of value.
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Write down the current value of each item. You may need to do a little research. For example, you might use Kelley Blue Book to determine the value of your car(s) and Zillow to get an idea of your home’s current market value.
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Add up the value of all of your assets. If you don’t have any debt, then you are done after this step! Your total is your Net Worth. But if you are like most of us and do have debt, then move on to step four.
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List all of your debts and debt balances. This will include your mortgage, car loan(s), credit card(s), student loan(s), and any other financial obligations.
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Total what you owe, and imagine how you will feel when this number is $0.00. Let your excitement begin to grow.
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Subtract your debt total from your asset total. This equals your Net Worth!
During this process, I recommend also making notes of the interest rates on your various accounts. This is helpful to see which accounts you are earning a higher interest rate on and those accounts for which you are paying a higher interest rate. It could be that you are paying more in interest than you are earning.
If you have a low or negative Net Worth and/or debt balances with high-interest rates, get angry at those numbers. Let the fury fuel you to attack your debt with a greater intensity.
Congratulations! You have just taken the first step toward digging yourself out of debt!
What About You?
Participate in the conversation. When was the last time that you calculated your Net Worth? Share in the comments below.
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