Since the global economic collapse in 2008, individuals all over the world have been keeping a close eye on their personal finances. As governments run enormous deficits by injecting large sums of money into their economies, families have been forced to track their spending habits, income and debt through budgets to determine their overall net worth.
In this day and age of financial uncertainty it is crucial to understand how much money you have on hand for the present and the future. It is also important to establish your overall individual net worth.
For personal finance, personal worth (or net worth) is calculated using the value of all of your assets minus the value of your liabilities. We will get into this shortly.
Before you actually calculate your net worth, you must first understand the significance of conducting this measurement of wealth.
As with any other means of personal finance, you must take the time to sit down and sort through all of your income stubs, bills and investments. This will allow you to make exact calculations instead of inputting general ballpark figures from your head.
It will also allow you to establish meaningful and achievable goals, which will prompt you to plan how you spend your money and how you save the fruits of your labor. In the end, it will motivate you to work hard to the road of financial independence.
Now it is time to list your assets and liabilities.
Assets can include cash at hand, investments, property and other items that are tangible in cash, but it is absolutely imperative to list things that will be more valuable over the long-term. For example, your vehicle or furniture will not be worth more tomorrow, but your mutual funds, 401(k) and bullion will.
Liabilities are your debts, loans, lines of credit, taxes and any money that you owe someone.
Assets – Liabilities = Personal Net Worth
It is best to keep track of your personal worth on a monthly basis. By doing this it will help ensure that you are meeting your goals and to correct any discrepancies, such as an increase in debt or a loss of income.
Now, there are a variety of methods to utilize to calculate, follow and update personal worth.
The first general means is to insert all of your information into a Microsoft Excel Spreadsheet. Microsoft also offers a personal net worth calculator on Microsoft Office (2003-plus), which is downloadable for free.
There are a variety of websites that offer balance sheet spreadsheets and calculators, such as Tools for Money, My Financial Statement and Moneywell. You can always do a simple Google search to find software that best meets your needs. Or, you can browse through CNet to find finance programs.
Do not procrastinate. Take a deep breath. Never be discouraged. Always live within your means. Remember, those who live beyond their means are destined to live beneath their means.