At the beginning of the year, it is not unusual to be imbued with a desire for renewal – to somehow improve on an aspect of our lives. As a financial advisor, I am not going to offer the usual bromides about saving more and paying down your debt. Before you can even consider such steps, it is important for you to understand where you are right now.
In the field of medicine, there are key measures of your health such as your blood pressure and body mass index. In the world of personal finance, most people would be at a loss for indicators that give a reasonable assessment of your financial health. Your net worth is a number that you need to know, whether you are a tycoon or someone who is just starting out.
If you do not know what you are worth, how can you tell whether you are moving forward or backward financially? That is why everyone needs to know their net worth. There are plenty of web pages that will help you to calculate your net worth. We provide all of our planning clients with a net worth statement that is updated throughout the year. We also maintain a net worth history that graphically illustrates the path their net worth has taken since they began working with us.
Very simply, your net worth is the combination of all of your assets, as well as your debts. It is an inventory of everything you owe and own. Comparing your net worth statement to that of a year ago will tell you whether you are any more financially secure after working for an entire year. Comparing net worth statements will also show whether you are fooling yourself by enhancing your lifestyle through the excessive use of debt.
The only way to meaningfully change your financial behavior for the better is to see the effects of your habits. If comparing your net worth to last year leaves you unsatisfied with the results, now is the ideal time to take a realistic look at how you are spending and investing your money. Are you adding more debt than savings? Forming positive habits now will enable you to use the power of compounding over time to move you toward a financially healthier future.