Do you know your net worth? And does it matter?

Jul 7, 2024 | Insights

Your net worth helps you understand your self-worth and is the starting point for an action plan for changing both.
When a client first responded with a bewildered ‘I don’t know’ to my question about their net worth, I was taken aback. I had always assumed this was fundamental knowledge for most people.

However, as time passed and a similar answer arose more frequently than I imagined, I began to ask myself why.

One primary reason for this lack of knowledge is practical. Many people don’t have the time, knowledge or skill to calculate their net worth.

The second reason is emotional. This inventory process tells a story about you and your family, your thoughts and feelings, your values and goals, your friends, and your “stuff.”

How to calculate your net worth

So, let’s take the first step. Channel your inner accountant and counsellor and start creating your net worth statement.

You can do this on the back of an envelope (or at least a sheet of A4). First, create five categories and list the items you own in each:

  1. Cash. Get the values from your bank or building society statements. Cash is usually available within a day or so, and it usually earns little, if any, interest.
  2. Invested assets. Log on to your portfolio or find the most recent statement. You can generally realise invested assets in a week to ten days, but remember you might realise them at a loss or incur penalty charges, fees and tax liability.
  3. Illiquid assets. These are assets not immediately available to you. Pension funds are an obvious example. You may have to dig a bit deeper to find the current value.
  4. Liabilities. Include everything from your mortgage to your credit cards, and remember possible tax liabilities.
  5. Used assets. These are assets you use daily, such as your house and car. However, although you could sell your home, it would leave you nowhere to live – hence calling it a used asset.

You may wish to omit used assets, but you should include both where an asset is matched to a liability, such as your home and a mortgage.

To calculate your net worth, add up the totals of the first three categories and deduct the value of your liabilities.

Try to carry out the exercise every quarter or more frequently. Using a spreadsheet will help you identify trends. As you learn where to find and record information, the process becomes routine, fast and easy.

Your net worth helps you understand your self-worth.

You should mobilise your inner councillor at the same time. Your self-worth mirrors your net worth and may give rise to fear or relief. Neither is particularly helpful. It is what it is.

But at least you know, and you can make plans accordingly.

And this, of course, is the primary reason for working out your net worth. However, there are other reasons, including:

  1. Seeing your life through your money
  2. Swallowing the frog of your fear
  3. Determining what is enough
  4. Planning your future
  5. Knowing yourself – the beginning of all wisdom (Aristotle)

Your net worth helps you understand your self-worth and is the starting point for an action plan for changing both.

Photo attribution

Photo by Alejandro Escamilla on Unsplash

Audio link

https://audio.com/jeremy_deedes/net-worth/

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https://wordsnotdeeds.co.uk/inner-consultants/

I'm Jeremy Deedes. I coach experienced independent consultants who are overwhelmed by the demands of life and work. Through my unique FUTURE program, clients become financially mature and organised and create a plan to achieve their personal, professional, and financial goals confidently and clearly.

Discover your money maturity score by taking the Money Maturity Quiz at https://shrtm.nu/n2D. It’s free, takes only a few minutes, and you will get your score and recommendations by email immediately.

Then, use the link below to schedule a free 20-minute call with me so we can start you on the path to understanding your money and creating a new story to tell your family and friends.

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