Finances can be intimidating, but they don’t have to be. With a few simple calculations, you can get a good idea of your financial situation. Your net worth is one of the first steps to organizing your finances. With about fifteen minutes and a calculator, you can quickly determine your net worth!
Pro Budget Bundle
Before we get started, now is a great time to download my completely FREE Budget Boss Bundle! Are you tired of disorganization and frustration with your finances? Are you overwhelmed because you don’t know where to start?
Babe, I’ve been there! I couldn’t find free budgeting tools that worked for me, so I created my own set of budgeting tools for beginners! This resource is packed with 20+ pages of printables, and reusable templates. All to help you organize your finances and stick to your budget!
Here is what you get:
- Net worth calculator template
- Monthly budget template
- Savings goals worksheet
- Recurring expenses tracker
- Financial action plan worksheet
- Cost-cutting workbook
Download the FREE bundle and let the organization begin! It’s time to say NO to fear of finances and YES to organization. (Did I mention I send extra free resources to my readers every month?) I know you’re ready to stop procrastinating and start grinding. Hit send me the bundle and get the it now!
Okay, back to the main event!
What is Net Worth?
To understand net worth, you must first understand assets and debts. They are like the pros and cons of your finances. Let’s take a look.
Assets are anything valuable that you own. They have economic value and can be traded or sold. An asset can also be a resource – something with the ability to make money in the future. For something to be an asset, you must be able to convert it to cash.
Examples of assets:
- Real Estate
- Stocks and bonds
- Trust funds
- Retirement accounts
The most common assets for the average millennial are cash, real estate, and vehicles.
Types of Assets
Assets generally fall into one of two categories: liquid and illiquid assets. Sorting your assets into these categories is not necessary for determining your net worth. However, it helps get a better idea of your finances.
A liquid asset is any asset that you can quickly convert to cash without losing much value. Checking accounts, savings accounts, furniture, and vehicles are all considered liquid assets.
Perhaps you’ve heard the term liquidate before. To liquidate an asset means you are converting it to cash.
It’s easy to see that an illiquid asset is just the opposite. It is an asset that doesn’t easily convert to cash. At least, not without significantly reducing in value. Real estate is not considered a liquid asset. It can take several months to sell a property, and there’s lots of paperwork involved.
Bonds are illiquid assets because you can not sell them immediately without losing a lot of value.
Your retirement fund is an illiquid asset until you are eligible to retire. Then it becomes a liquid asset.
Debt is any amount of money that you owe another person or business. Debts are often referred to as liabilities when discussing net worth.
Examples of debt are:
- Student loans
- Credit card debt
- Car loans
- Business loans
- Personal loans
- Department store credit cards
- Gambling debt
- Outstanding bills
The average millennial has their fair share of debt. So don’t feel ashamed when taking a good look at your debt to determine your net worth.
Debt and Millennials
With the struggles of the American economy in recent decades, it’s no surprise that millennials are one of the poorest generations on record.
58% of millennials have less than $5,000 in their savings account. Although wages have increased in the last fifty years, they have not grown enough to keep up with inflation.
Rising real estate values and low wages are persistent problems. Millennials have to save for ten years on average before they can afford a 20% downpayment on a house. A college degree is of little advantage in today’s competitive job market.
Speaking of college, student loans are the leading cause of debt among American millennials. Over half of millennial graduates don’t believe the advantages of their degree was worth the crippling debt they are still paying off.
Net worth has decreased by 34% since 1996, according to the Washington Post. Yet, the graduating class of 2018 has an average debt of $29,800 in student loans. And according to Business Insider, the net worth of the average millennial is less than $8,000.
However, financial hardship has not deterred millennials from striving for financial freedom. A high percentage of millennials stick to their budgets and are actively working to pay off their debt. Despite the difficulties of the economy, millennials continue to march forward to achieve financial freedom.
Good Debt and Bad Debt
Many finance experts believe that not all debt is bad debt. In the current economy, it’s important to build credit and to have a good credit history. Building good credit means making payments on good debt consistently until it is paid off.
A mortgage is generally considered to be good debt. Getting a mortgage is an investment and a liability at the same time. Paying on a house is a great way to develop a credit history while investing in real estate.
Credit card debt can be good debt if you are disciplined. The trick with credit cards is not to ever spend much of your credit line. Ever. By using small amounts on credit each month and bringing the balance to zero, a person can develop a good credit history. However, credit cards are a slippery slope and can lead to enormous debt very quickly.
Some finance experts don’t believe in credit. They teach not to take out credit cards or to take out a mortgage. Living without any debt is simply not realistic for most people, but debt is a very personal decision. Dave Ramsey has made a considerable name in finance by teaching how to live without debt.
So…Back to Net Worth
Net worth is your overall value – your assets minus your debts. Your net worth can be negative or positive.
I have a free net worth calculating worksheet in my Budget Boss Bundle. But, if you don’t feel like downloading the free templates, here are the steps:
1. Write down every single asset you own, along with its value. Add all of the amounts together. This number represents your total assets.
2. Write down every outstanding debt you owe, along with its value. Add all of the costs together. This number represents your total debt.
3. Subtract your total debt from your total assets. The equation should look like this:
Total assets – total debt = ________
4. The resulting number is your net worth. This number can be either positive or negative. Let’s take a look at what each result means.
Positive Net Worth
Your net worth is a positive amount – great news! Your assets (financial pros) are worth more than your debts (liabilities). Achieving a positive net worth is one of the first steps in building wealth. When your assets outweigh your liabilities, you have more money available to save or invest.
Once you’ve achieved a positive net worth, you can set your sights on your target net worth. A target net worth is nothing fancy. It’s just another way to track your financial goals. Having a target net worth means you know how much money you want to be worth overall. People reach these targets by increasing their assets and lowering their liabilities.
Negative Net Worth
Did you come up with a negative number? There’s no reason to sweat it. Most people under the age of 35 are going to have a negative net worth. That’s just the way the economy functions these days. Between those pesky student loans discussed above and large mortgages, negative net worth for the average young person is expected.
The important thing is that your net worth is manageable and not affecting your everyday life much. If you can pay your bills and your loan payments while saving a bit, you’re doing fine. Your good habits will pay off in the future as you keep chipping away at those liabilities!
Strategies for Increasing Your Net Worth
- Financial advisor
- The Debt Snowball
- Increase Cash Assets
- Start Investing
Get a Financial Advisor
Consulting with a finance professional may not be as expensive as you think. And the benefits of getting expert advice will be well-worth the hourly charge. A financial advisor will assess your financial situation and brainstorm ideas on how to increase your net worth.
Most financial advisors are sticklers for growing your retirement fund, which is a push many of us need! They can look at your spending objectively and suggest areas where you can cut down. If you’re interested in investing your money, a financial advisor can explain each type of investment’s risks and benefits.
Remember that great feeling of finishing all your homework assignments? That’s how visiting with a finance expert makes you feel – on top of things! With answers to your questions and a plan in place, you’ll be set for financial success.
The Debt Snowball
Dave Ramsey patented the idea of the debt snowball. It’s a method of paying off debt that has been very effective for many people. The idea is to pay off your smallest debts first. As you pay those debts, you put that same dollar amount into paying off the next debt. As you knock out debts, you free up money to tackle the following liability – creating a growing “snowball” of debt payments. Learn more about the debt snowball here.
Increase Cash Assets
To put it simply, you can increase your net worth by saving money consistently. You can do this by reducing spending (budgeting, menu planning, etc.) or earning more money. Many people have a side hustle of either working online or creating passive income systems. Driving for a rideshare app or running deliveries are great options for people with vehicles.
Get on that grind and make it pretty!
The idea of investing can be intimidating, especially to beginners. A common misconception is that only people with large amounts of money can invest. But, this simply isn’t true. Yes, investing in the stock market comes with its risks. However, stocks are not the only way to invest!
Buying a home is one of the best investments you can make to build wealth and increase your net worth. Whether it’s a condo or a family home, investing in property as soon as you responsibly can is a massive win for your financial future.
Starting your own business is also an investment. With the rise of online business and affiliate marketing, there’s more opportunity than ever before. The great thing about investing in an online business is that the initial investment is incredibly low compared to brick-and-mortar businesses. Blogging is an incredibly lucrative side business to invest in. Plenty of people make a killing selling digital products on Etsy or offering online coaching programs.
Alex and Lauren from the Create and Go and Avocadu blogs make over $200,000 every month with their blogs and courses. I am a huge fan of theirs as they changed the blogging game for me. They are experts in the field, and their courses are the best I’ve ever taken (and I’ve taken plenty).
When I tell you that I have taken more blogging courses than I can remember, I’m not lying! I’ve downloaded countless freebies, bought eBooks, and tuned in to webinars. But nothing has ever been so beneficial to my blogging development as this comprehensive blogging course from Alex and Lauren at Create and Go.
To learn more about Alex and Lauren’s Start Your Blogging Biz course, CLICK launch your blog biz!
Tools for Tracking Your Net Worth
Budget Boss Bundle
As I mentioned above, I developed the Budget Boss Bundle to help you organize your finances the easy way.
There’s a ton of great reusable templates – so many that it should really be a paid offer! But I’m always about providing value to my readers, so I’m giving it away for FREE. Don’t miss out!
Online Net Worth Calculators
I’ve rounded up a few of the best online calculators to help you determine your net worth!
ChrisHogan (very easy to use – no mumbo jumbo)
Kiplinger (also recommend)
These days, there’s an app for everything – even net worth! Most banking apps will have a tab specifically for determining net worth. However, some apps exist for the sole purpose of tracking it. The following are available for iOS.
On Your Way to Wealth
Determining your net worth is the first step in organizing your finances. You can think of it as the bird’s eye view of your money matters. Knowing your net worth allows you to set healthy financial goals, build your assets, and pay off debts. The journey of a thousand miles begins with a single step. And the first step towards wealth to determine your net worth!