Welcome to Day #5 of the January Money Diet. Before we begin, I want to give a BIG shout-out to all 20 of you who contributed easy dinner ideas, photos, recipes and meal plans over at the Facebook Money Diet Group.
Thank you so much for responding to yesterday’s Meal Planning Challenge, and for your generosity and great comments!
Challenge: Figure Your Net Worth
Completing this simple exercise is one of the most important things you can do for your money picture.
Today’s challenge is one of the most important things you can do for your money picture.
Our family’s finances didn’t really start moving in the right direction until I began calculating our Net Worth each month.
Before then, I could fool myself too easily. I could feel virtuous about putting $100 in our savings account, for instance, and conveniently overlook the fact that I also charged $150 on a credit card that month on impulse buys.
The only honest way to measure where we really stand financially is by figuring our Net Worth.
Net Worth, as you probably know, is the difference between what we own and what we owe. For an easy illustration, let’s look at my net worth when I was in my early 20s:
As you can see, I had very few assets, borrowed money to buy a car, and used a credit card for stuff I couldn’t afford.
Now that I’m older and wiser (?), our net worth generally moves in the right direction and this is an an exercise I actually look forward to.
I calculate our net worth at the first of every month, and my goal is to keep that bottom line moving up, up, up.
If you do the same, you’ll discover that your finances can improve dramatically over time.
Start With Your Assets
To do this calculation you can simply jot the figures on a piece of paper and use a calculator, or you can create a simple spreadsheet with a program like Excel. (You can download Money Under 30’s simple Excel Net Worth spreadsheet here.)
Start by adding up your assets. If you’re a homeowner, list the current value of your home. If you’re not sure, a site like Zillow can give you a rough estimate for now. Your professional neighborhood realtor would probably be happy to give you a more accurate market value, too.
Go out to your car and write down the mileage and condition, enter the info at Kelley Blue Book, and figure out the private party value. Check the current balances for your bank accounts, retirement funds, investments, etc., and add those to the list.
Don’t forget things like your grandpa’s coin collection, or any valuable jewelry, antiques, artwork, etc. you own. Just be realistic about the cash that the sale of such items would generate. If you’ve ever held an estate sale or tried to liquidate someone else’s assets, you’ve probably learned that what people are willing to pay for others’ treasures is often considerably less than the appraised value.
Add everything up, and you’ll have a pretty good idea of your total Assets.
Next, make a list of every single one of your debts: mortgage balance, car loan, credit cards, lines of credit, student loans, etc. Add these up, and you’ll have your total debts, or Liabilities.
Now, simply subtract the Liabilities from the Assets to figure your Net Worth.
The result will be different for each of us. If yours is a negative number, don’t despair! When I was 21, I had zero assets, $5000 in credit card debt, a new car I couldn’t afford, and an upside-down car loan with a 21% interest rate!
Regardless of what your financial situation is today, you can acknowledge that this is your starting place and resolve to get your net worth moving in a positive direction in the days ahead.
By figuring our net worth every month, we can see the effects of our financial decisions in a very real and immediate way.
If I charge a $25 sweater on my Visa card, our net worth goes down $25. If I instead contribute that $25 to my Roth IRA, our net worth goes up $25. So simple!
Now It’s Your Turn
Get out your calculator and do the calculation for yourself. Are you about where you expected to be? Where do you want to be by the end of the year? We’d love to hear your thoughts about this exercise over at the Money Diet Community Facebook Group.
Here’s a simple goal: calculate your net worth each month during 2020, and increase your bottom line every month.
Are you already in the habit of regularly tracking your net worth? Perhaps you’d like to set a specific Net Worth Goal for the end of 2020.
And remember, no matter what the spreadsheet says – YOU are worth more than the finest gold or silver.
Here’s to a successful January Money Diet, and a financially strong 2020.
P.S. I’m so grateful for the 2021 January Money Diet’s generous sponsor YourMoneyFurther.com and the Open Your Eyes to a Credit Union campaign. To find a credit union near you to stash your JMD cash, use this handy Credit Union Finder.
P.P.S. If you use Pinterest to save ideas, here’s a handy pin: