Skip to main content

Determining Your Net Worth

People who are preparing to make a large purchase often think about their credit score, and for good reason. It is a measure with which lenders decide your credit-worthiness and risk. However, for some people, the whole process of credit (while important) and managing it can be overwhelming.

That is why I suggest taking a slightly different approach, not just as you think about buying, but with your entire life: Focus on your net worth.

There is a great FREE downloadable mini book from Seed Time you can get called "The Christian PF Guide to Getting Out of Debt". I suggest you download the 40-page booklet here: Seed Time

In that mini book, they talk about many great factors regarding how to look at debt, how to get it under control, and how to eliminate it. But one chapter talks specifically about net worth, and I want to share a portion of that with you for consideration to help you understand why its so important:

How to calculate your Net Worth
This shouldn't take more than a hour if you have never done it before.
When you update it in the future it will take even less time than that. I
have created a template from my own balance sheet that you can use if
you would like. (You can download it in the PDF book).
1. Get a spreadsheet
First off, you can do this on paper if you really want to, but I suggest
Excel, Google docs, Open Office, or really any kind of spreadsheet will
2. Total your assets
List every asset you can think of. Anything that you could realistically
sell. For the purposes of sanity and simplicity I don't bother with items
under about $500. Yea, I am sure I could find someone on Ebay to buy my
socks, but I am just looking for a general picture. So I just lump together
all these smaller items as one line called "Misc items" and take a
conservative guess of what they could be sold for.
So your house, cars, retirement accounts, stocks, savings accounts,
checking accounts, emergency fund, jewelry, and anything else similar
would fall in this category.
To get real estate values you can use Zillow to get a decent estimate of
what your home may be worth. For automobiles you can check out Kelley
Blue Book to see what they could be sold for. For all your checking,
savings, investment accounts you can either check the balances online, or
just use your last statement.
Once you have them all listed with the estimated selling/liquidation
value you can total them up.
3. Total your liabilities
A few lines below the Assets total, we are going to now list every debt
you have. Mortgages, credit cards, student loans, they all apply. Do the
same as above checking balances on each one and then total your debts
to get your liability total.
4. Subtract them
Now you can subtract your liability total from your asset total and viola!
You have your Net Worth. Date it and save it.
Now what?
When I first calculated my Net Worth, it was -$13,843.84. Which was eyeopening to me. I knew I had a bunch of debt, but didn't realize how below par I was. Regardless of what you number is, just look at it as the starting point. It is from this point that it will become larger.
After we had been working at it for one year it was up to $746! We were
so excited to have a positive Net Worth! Even if it was only $746. As we
kept on working on it, it has just continued to grow.
I normally update mine about two times a year. But if you are working
really hard at it and need to see the encouragement of it increasing, do it
more! As in just about anything, you are either moving forward, or you
are going backwards. If you are increasing your assets by making good
buying decisions or minimizing debts your net worth will be growing.

Again, I suggest going to their site and getting the free downloadable book. But the reason this is so important, in my view, is that it gives you a better view of your personal financial picture and it helps you evaluate the importance of the things you are putting your money into.

As you consider investing in real estate or moving from renting to buying, seeing the value in what you are doing is so important. You can do things you WANT but don't NEED to do like buy that new iPhone, those boots, and eat out twice a week on the fly OR you can look at it in terms of how it impacts your net worth and, say, your ability to make a down payment!

When you look at things in terms of the impact to your net worth and pair that with keeping and sticking to a budget, as you get any debts under control I believe you will find, as many people do, that with some planning, discipline, and responsibility you can grow your net worth, and plan ahead in your budget for the things you WANT (Like I WANT my new iPhone!)

It's win-win!



Popular posts from this blog

Understanding Mortgage Interest Rates (VIDEO)

How do you get the interest rate that you do?

Well, there are many factors, including your credit worthiness and the interest rate set by the Federal Reserve.

The Khan Academy however, has produced a fantastic video that breaks everything down simply and makes it easier to understand.

If you are starting the process, or thinking about starting the process, of buying a home then take a few moments and watch this video to get a better understanding.

A Look at Roofing Options

When my wife and I bought our home in 2015, one of the things we wanted to know about, as may do, is the condition of the roof. There is nothing more frustrating than making a major home purchase and then finding out that you have to immediately pump thousands of dollars into it because something wasn't in a good, usable condition!

Of course, there are property disclosures that help us avoid that scenario, and those are helpful. But when it comes to your roof, even if it's in great condition today, one good hail or wind storm could potentially change that! Even without that kind of misfortune, your roof takes a beating much like the skin on your hands. Every day it takes the full force of the elements, so eventually it will come to the point of needing to be updated, maintained, or replaced.

That happened to a neighbor this past fall. When it did a group of men showed up and did something I'd never seen before... they put a metal roof on the house! Working at a church, I …

My Deal With Drains

Last year my wife and I noticed that the drain in our kitchen was starting to get very slow. Over time, despite cleaning it out and running extra hot water, it reached the point of being completely clogged. Eventually, we had to call not one, but two plumbers to get the issue totally fixed, because it turned out we had a level 5.

The stuff coming out of our drain pipe literally looked just like the stuff in this picture:

Makes you want mashed potatoes, right?

And I won't even tell you how vile it smelled. Thank the Good Lord for my wife's stash of essential oils and multiple diffusers!

Now, our problem was pretty serious, and one that had been building up (literally) for decades. Long before we moved into the house this issue existed down the drain (HA!). And the first plumber who used his auger really was a big help in giving us an understanding of what was happening and getting us on the path to clear pipes.

Unfortunately, he couldn't do all the work in one day, so we h…