How To Assess Your Net Worth

Before you can become wealthy, you must first assess your current financial situation.

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Understanding your current financial situation will give you a starting point to develop a personal financial plan for your future. To determine your financial situation (financial health), you will need to calculate your current monthly budget (and determine how your spending habits relate to that budget) and then you will need to calculate your current Net Worth.

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These two measures (along with your credit score) will determine what you need to do to accomplish your financial goals in 30 days, a year from now, and 20 years from now!

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First, what is wealth?

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Everyone may have a different definition of what wealth is. To some, it may mean a big house and a private jet; to others, it is the ability to put their children through college and own their home free of mortgages.

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Take a minute and think what having wealth means to you.

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Whatever your personal definition of wealth is, there are ways to help you achieve it.

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Although our individual definitions of personal wealth may be different, general wealth is defined by your Net Worth.

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Net worth is simply the worth of your assets (the things you own) minus the cost of your liabilities (the amount of debt you have).

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In other words:

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Net Worth = Assets - Liabilities

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One way to look at net worth is to imagine you sold everything you owned today for its market value. Would the money you make from selling these items be enough to pay off all of your debts with some left over? If so, you have a positive Net Worth!

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Eventually, you should want to increase your net worth enough so that this wealth can sustain you through your lifetime and retirement. For a continuation of this article, see the resources below.