Begin 2024 with the mindset of prioritizing your financial wellness.
In the spirit of National Mentoring Month, I have assembled 4 key exercises to start your year off right by prioritizing your financial wellness.
In the previous post How to Create and Maintain a Budget, I challenged you to commit to a budget for the next 12 months. For this task, you reviewed your spending for the previous year and cataloged your spending based on the three primary types of expenses: essential, fun/discretionary, and planning for the future.
To recognize the success of your financial wellness and the impact of your budget, you will be moving on to your next challenge: tracking your net worth.
Tracking your net worth is one of the best ways to monitor your financial situation. It provides feedback on whether you are keeping pace with your goals and if your budget is meeting your needs.
What is net worth and how is it calculated?
Your net worth is how much you're worth once you subtract all your debts. Debts are also known as liabilities.
The formula isn’t complicated. You simply add up all of your assets. Then you add up all of your liabilities. Afterward, subtract your liabilities from the assets. Easy-peasy! You have your net worth.
There are 4 steps to calculating your personal net worth.
1. List Your Assets
Assets are things you own outright that have a monetary value. There are several types of assets, and some of these assets depreciate (lose value) while others appreciate (gain value). You may need to estimate the market value of these assets and that’s okay. A ballpark value will suffice.
Liquid Assets: This is cash on hand or assets that can be easily converted to cash. It’s money that’s in your pockets or stored in a savings account, checking account, certificate of deposit, treasury bills, cash value portion of permanent life insurance policies, stocks, bonds, or other investment accounts.
Tangible Assets: These are physical objects or the assets you can touch. This may include your home, car, or boat. If you own physical gold or silver, include that here.
Intangible Assets: These are nonphysical assets, which may be difficult to evaluate. It includes items like patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software.
Illiquid Assets: These are assets that take longer to convert into cash, and their value may change in the process. This includes investment real estate, collectible furniture, antiques, art, and jewelry. If you own a small business, its value with business property could be included here.
Identify your assets and estimate the value of each. Afterward, add up the total.
2. Add up your liabilities.
Your liabilities are the outstanding debt you currently owe. You likely receive a monthly statement for each, and this is a good place to locate the amount you owe. Identify the types of debt you have and list the amount owed on each. Then, add them all together to discover your total liabilities.
Some common debts include:
Mortgage(s)
Car loan(s)
Credit card balance(s)
Student loans
Medical bills
Student loans
3. Assets - Liabilities = Net Worth
Subtract your total debts from your total assets to determine your personal net worth
4. Track net worth over time.
Net worth fluctuates, and that’s normal. Update your personal net worth each year after you file your income taxes. Consider hiring a financial advisor in Champaign, IL to help you monitor your net worth each year.
FREE DOWNLOADABLE RESOURCE: You can calculate your net worth on your own or ask your trusted financial advisor in Champaign, IL for assistance. Get started today with Peak Wealth Planning’s Personal Net Worth spreadsheet.
Why is tracking your personal net worth important?
Tracking your net worth lets you understand your current financial situation and it gives you a reference point to measure progress toward growing your retirement nest egg and paying down your mortgage. Your goals for the future hinge on your net worth growing.
Ideally, as you earn money and invest, your net worth will grow. If your net worth is low or negative, you will need to adjust your budget, saving more and spending less.
How can a financial advisor help increase your net worth?
Your trusted financial adviser in Champaign, IL can help you with strategies to increase your net worth. These may include investing more in your 401k, creating a debt reduction plan, or renting out a rarely used vacation home. If you have more than $2 million saved and need help from a wealth manager to grow your net worth, the Peak Wealth Planning team can assist.
Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning offers personalized concierge services to meet your wealth management needs, including financial planning, investment management, ESOP diversification, retirement income, insurance, and estate planning. As a fee-based financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states.