Building Net Worth: Where Do You Stand?

Money makes the world go round, but it doesn’t seem to stay in your hands long enough to take you where you want to go. There are TONS of articles and a LOT of advice on how to make and keep money. It can be overwhelming, so where do you even start? You start with a dream (see previous blog). Then you take the next step: Figure out where you are.

For me, once I had my dream full front and center, the first thing I did was figure out what I was worth. Sounds crazy? Yeah, crazy like a fox! It’s like planning a journey. You know where you want to go, but you have to know exactly where you are to chart a course to your destination. And it’s not just me that looks at “Worth,” when thinking about personal finances.

When you hear labels like: 5th richest man in the United States, or that “He is worth over 5 billion dollars.” What are those people talking about? Are they talking about the cash he/she has in the bank? I mean, think about Zuckerberg. He is worth billions! But does he actually have billions of dollars in his savings account? Not if he still wants to own Facebook. So what are they all talking about?

If you haven’t guessed yet, it’s not just about the cash in the bank or being able to pay your bills each month (although those two things are totally awesome!). It’s about how much money or resources you can marshal or pool when you need it. The journey to financial freedom is a long one, but your Kung Fu will be strong grasshopper! As long as you can figure out what you are worth.

Beware, this exercise is not for the faint of heart. It’s about to get real! My net worth was in the negative when I first did this. I didn’t cry, but men, the pain was intense. But it helped me figure out the best way to chart my course to build it up to my goal.

Here is the basic formula to remember: Assets – Liability = Net Worth. Assets are things you own or have rights to use. Liabilities are just that: things you owe people or others have a right to. And the difference between the two will tell you where you are in your journey to financial freedom.

I made a template with examples on different types of assets and liabilities to help jog your memory. The list can be endless for the movers and shakers. But for those of us who just started shuffling, the list is usually short and sweet.

The first thing to remember is this: Be honest with yourself. Don’t try to make things better or worse than they seem. All you want to see is what number your fuel gauge is pointing to. That way, you know how much to put in the tank. The second thing to remember is simple: your assets and liabilities should be listed at fair market value. Not sure what that is?

Let’s say you bought a beautiful antique furniture set for $10,000 (No, I don’t think you’re that crazy, its just an example). Well, your kids scratched it and it’s missing a leg. The most you can get for it will be $2,000. You put it in that template at $2000, not the $10000 you paid for it. Why? Because if you have to sell that furniture today, that’s what it’s worth to a buyer that doesn’t know you from Adam (parents’ and friend’s pity pricing do not count). That is the beauty of numbers; they just are. How you interpret them is up to you (glass half-full or half empty). But what about liabilities? I haven’t found a bank that will tell you to pay less than you owe, so just put exactly that. What you owe and the interest rate.

Once you have completed this exercise, let’s talk about the next step to take in moving towards your goal. Let’s talk about cash, baby!