During my recent Black Belt Money & Habits Podcast recording session, a guest of mine have discussed on an interesting topic about net worth. This is something I do keep track on my own net worth all the time. We know that the standard calculation to calculate your net worth is to take Asset – Liability & the difference will be your Net Worth. I believe if you do such calculation, some of us will have Negative Net Worth. LOL. My question back to you is, do you know how much is your net worth? Or you know it by estimation?
Does Your Net Worth Matter?
I think it does matter for you to know if your financial status is healthy. Some people have certain financial goals to achieve or early retirement goal. Keeping track of your net worth will help to determine the healthiness of your financial status. It is similar to your annual body check up. You may need to review it at least once a year or if possible on a quarterly basis.
High Income with High Asset Does Not Equate to High Net Worth.
There are some people that have good asset but at the same time they have high liabilities. With bad spending habits, they may end up having lower net worth compared to others that have lower salary with good financial planning. In order to have a healthy net worth, we need to focus on having good financial habits. It does not mean that with lower salary, you may not be able to achieve high net worth.
If you would like to know your net worth, lets take a piece of paper to do this exercise together shall we? Below is the list of asset & liabilities that you can use to refer. You may list down your assets & liabilities based on the item below.
1. EPF (Account 1 & 2)
2. Current Investment Account Value (Stocks, Bonds, Mutual Fund & etc)
3. Current Property Value
4. Current Car Value
5. Cash Savings (Cash, Cash Savings, Fixed Deposits)
6. High Valuable Goods (Gold, Jewelry, Artwork)
1. Personal Loan
3. Car Loan
4. Mortgage Loan
5. Credit Card Debt
Once you have done the listing of all the items above, take your Total Assets – Total Liabilities. The difference will be your Net Worth. You may be shocked that some of you may have negative net worth & some of you may be a millionaire.
If your net worth is low, what can you do to make it better? First I would suggest you to look into list of liabilities if you have any. Focus on clearing those liabilities & you may be able to increase your net worth once you clear off your debts. If you don’t have liabilities, you may focus on how to increase your assets. It may come from diversifying your cash savings to investment such as properties, stocks or others. With the Power of Compounding & long term investment, your net worth will definitely increase over time. It is never too late to start.
If you have a healthy net worth, congratulations you are on the right track to have higher net worth in the future. What can you do from here? Keeping your spending healthy is an important thing to do. Avoiding any unnecessary debts such as credit card debts & personal loans will also help to increase your net worth. Most important of all, focus on increasing your net worth by diversifying your investments.
Now that you have known your net worth, what is your next action? Each of us have different financial goals to achieve in our lives. Focus on what you think is right but don’t forget to keep your financial status healthy. There’s a balance that we all need to enjoy in our lives & live our life to the fullest but never overspend on anything or put yourself in a situation where you may have debts. Do keep track of your personal finance & your net worth and I am sure that you are able to enjoy your life when you are ready to retire.