As you go through your life eliminating debt, building an emergency fund, and building wealth, how do you know when you have enough wealth? When can you stop building wealth? Some people want to know when they can retire or if they have enough to be financially independent. How do you know when you have enough? You need to set a goal for yourself, and in order to know when you reach your goal, you must know your net worth.
Your net worth is your assets minus your liabilities. It’s all the things you own minus all the debts you owe. When you first get out of college and if you have a large amount of student loan debt, you probably have a negative net worth. On the other hand, if you’ve been working, following this plan, and saving for 10 years, you could have hundreds of thousands of dollars of net worth.
Your assets are everything that you own. Make a list of everything you own and put a value on it. You have your house, you have the money in your checking account and savings accounts, and money in retirement accounts. If you happen to have a cash value life insurance policy, write down the value of it. Write down the value of your vehicles, other investments you might have in stocks or real estate, and anything else that you own. You do not need to list every specific household item that you own. Estimate a value for all of it. If you own a business, determine the value of it.
Most people in America own so much stuff it’s ridiculous. It’s ridiculous in the sense that we own so much stuff and yet we’re still broke. We own houses, yet we’re house poor. We own two vehicles and they’re both underwater. We have other assets like our TVs and living room furniture, but we are making payments on them. We have so many assets and yet we live paycheck to paycheck.
We are house-poor, our vehicles are underwater, and we live paycheck to paycheck because of our liabilities. Liabilities are what you owe. It’s your debt. Make a list of all the debts you owe, which you already know if you are following a plan to build wealth. If you haven’t woken up yet and started down a path to be debt-free, this is another opportunity for you. List your debts and add them up.
Take the amount of assets that you own and subtract the amount of liabilities that you owe, and that gives you your net worth. See where you rank when compared to the rest of America.
Why Track Your Net Worth
You want to track your net worth regularly, so you know where you are and so you know when you’re there.
Know Where You Are
You need to know where you are so you can know if you are on track to reach your goals. Hopefully, one of your financial goals is to build a certain net worth so you can become financially independent. Tracking your net worth will show you if you are on track to reach your goal. When you know you are behind on your goals, you can do something about it. I don’t recommend changing your goals as much as I recommend changing your behavior in order to reach them.
Know When You Are There
Part of tracking your goals is to know when you reach them. If you don’t keep track of your net worth you will never know when you have enough. Some of you want to know when you can stop working for the man, and others want to know when you can live and give more. Knowing your net worth will show you when you are at that point.
Are You On Track
Have a financial goal and track to it. As mentioned above, knowing your net worth can determine if you are on track to reach your financial goals. If you have not determined how much you need to be financially independent, take your annual expenses and multiply it by 25. This is the amount you should be shooting for, and this number is based on the 4% Rule.
Are you on track? If you are on track, that is awesome! So many of you are not on track and don’t think you can ever build wealth. Someone has convinced you that building wealth is out of the question for you. I am here to tell you that it’s not! In fact, you only need to do four things to build wealth! Calculate your net worth today to see where you are. Get on a plan today in order to change your financial trajectory. Stop living paycheck to paycheck and being broke. Get help if you need it. There is no better time than now to start building wealth.