What’s your net worth? Do you know?
Knowing your net worth is an important first step in setting your financial goals. It is the most accurate measure of wealth and helps you move the financial focus beyond income alone.
Your net worth is equal to the value of your personal assets, minus any debt you may owe. Positive net worth means you are heading in the right direction. If you can increase that number from year to year, you’ll be moving toward greater financial security.
Add Up Your Assets
Your assets are the cash balance in your bank accounts, money market funds and certificates of deposit. This also includes money invested in retirement plans, mutual funds, and other securities. Add in the value of any real estate, business interests, life insurance (cash value), and personal property such as jewelry, automobiles and furniture.
Subtract Your Liabilities
Liabilities are what you owe on your mortgage, credit card balances, student loans, lines of credit and other loans. If you owe taxes, include that amount as a liability.
Increase Your Net Worth
Calculating your net worth can be eye-opening, especially if it’s lower than you thought it would be. If you’ve realized it’s time to make changes, here are four steps that can help.
Manage your debt. Boosting your net worth isn’t just about increasing assets, it’s also about reducing debt. A written debt reduction plan can help you focus on this goal. Start by paying off debt with the highest interest rates first and then move on to paying off your other debts.
Control spending. Look for areas where you can cut back on your spending: eating out, expensive vacations, or a new car every few years. Use that money to pay down debt or increase your investments.
Contribute more to your retirement plan. If you have a retirement plan, make an effort to increase your contribution rate. At the very least, you should be contributing enough money to earn any matching contributions offered by your employer. If you don’t, you’re turning down free money and missing a vital opportunity to save for retirement.
Ready to take action? MERS has financial calculators to show you how much accelerating your debt pay off can save you and how quickly those savings can add up when invested.