This week I needed to provide a detailed statement of my Net Worth. This is a statement showing all my assets (the things I own) and liabilities (the things I owe), which when one is taken away from the other, gives the net worth figure. The bottom line figure of where I am financially.
Being aware of your net worth is a real golden nugget piece of information to have – it is like knowing your blood pressure! It is the measurement of how healthy you are financially. A measurement, a benchmark if you like.
Finding your net worth initially can take a bit of time and effort, but if it is updated monthly it becomes very easy and a habit. Setting a monthly money-date with yourself helps.
I encourage all my clients to be aware of their net worth as it is a valuable piece of information in so many ways.
It is important to note at this point, that many buy into the notion that their self-worth can be best measured by their financial success – their net worth. This belief is totally misguided and can be very damaging. I will cover this in a future article, so, for now, may I simply ask you to focus on the numbers?
This is why it is important to know your net worth:
Is a very empowering piece of information to have. The satisfaction of the knowledge alone puffs one’s chest out. Whether your net worth is positive or negative, high or low, just knowing focusses the light on an area of your life which is unavoidable and so important. No, our net worth is not to be confused with our self-worth, but knowing it can help boost self-worth significantly, as it enables the facility to change – both mind, attitude, and action.
It tells you where you stand financially, which means you can begin measuring and tracking. If you have a low net worth and you are working, then you have probably not been a great saver. Or your spending probably needs revising.
It will tell you if you are building too much debt. High liabilities, that in turn reduce your net worth significantly points out imbalances. If the liabilities are too high, then you know you have a debt problem that needs to be worked on.
It can tell you if you have an imbalance of assets. Look down the asset list, is there too much cash? or too much property. Ask yourself the question – am I diversified enough? If not work on balancing yourself or get the help of a financial adviser.
Knowing your net worth allows you to prioritise expenditure and saving. Goals can be set and tracked.
Get to know your net worth this month – update it monthly and be empowered to make the goals and changes in your life to get you to where you want to be.