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Keys To Building Wealth

Keys To Building Wealth – Finding Your Net Worth

This is part two in the series of keys to building wealth. I first would like to thank you for reading these articles and I hope you are finding them beneficial. There is nothing worse than stressing over money. The endless worrying about how to make ends meet do take a toll on our health. It is vital to your financial status to have a plan set in place that will pinpoint your financial position at any given time. If you apply just some of these suggestions I am providing, you will find your financial condition improving and consequently, your health and livelihood as well.

To become wealthy, many people are paralyzed to what steps should be taken. Which solution would be in the best interest, saving income, or paying off debt? How does someone build wealth without a substantial surplus of money?

As hard as it may seem to pay down debt, it is sometimes even harder to save. It is important to always save some income for emergencies, but at what costs is it not worth sacrificing? This decision is not easily answered, because everyone has different, unique circumstances. One option is to just compare the interest rates of what the debt is costing you versus what the savings would be earning.

Let’s create a starting point to become debt free and build wealth. The first crucial step is to find your Net Worth.

Net Worth

 

Net worth is simply a math equation, your assets minus your liabilities. You can either write this all down, or simply use a computer to analyze and record your findings. I used Microsoft Excel, a spreadsheet to figure out exactly what my net worth was.

In Excel, the first column will be all your liabilities listed with the balance totals. List all your liabilities: Mortgage, car loan(s), credit card balances, house and car insurance, and student or bank loan(s). Now your monthly payments for utilities, groceries, childcare, gasoline, etc, the costs of just living, will be added to the total liabilities in the next article. For right now, we just want to find out what our net worth is.

This amount is your Total Liabilities. For illustration purposes, below is an example of how your liabilities spreadsheet may resemble:

 

 

Liabilities
House
Honda
Expedition
First National Bank
Furniture
MasterCard
Visa
American Express
Life Insurance
House Insurance
Car Insurance

 

TOTALS

 

 

Now in column B list the total yearly costs or balances of each of these liabilities:

 

Liabilities Balances
House

$110,000.00

Honda

$14,000.00

Expedition

$2,100.00

First National Bank

$3,900.00

Furniture

$700.00

MasterCard

$2,300.00

Visa

$8,900.00

American Express

$3,100.00

Life Insurance

$1,191.48

House Insurance

$1,337.88

Car Insurance

$2,064.00

TOTALS

$149,593.36

 

Save this spreadsheet under the name Liabilities, or even better, skip several columns over to list your assets. This way, you have all your data on one sheet.

Now list all your assets, your house, your vehicles, savings accounts and checking account names, salaries, retirement funds, like 401K’s and IRA accounts. Also list your valuables, such as stocks, jewelry, collectibles and household items, like furniture, appliances, and art. In the next column, list the market value of each. For example, your house, if it was to sell today, what could you expect the appraisal value is worth. This is the amount you will enter for each of your assets.

Assets
House
Honda
Expedition
Fidelity stocks
Furniture
401K (wife)
401K (husband)
Checking account
Savings account
Household items
Collectibles
TOTALS

 

In the last row of the amounts entered, find the total value of all your assets. To find your net worth, simply subtract your liabilities from your assets totals. This amount is your Net Worth. So in column G, enter your assets. Below is an Illustration of what your asset lists may look like:

 

Assets Market Value
House

$198,000.00

Honda

$17,000.00

Expedition

$5,800.00

Fidelity stocks

$37,219.00

Furniture

$1,900.00

401K (wife)

$22,191.00

401K (husband)

$32,220.00

Checking account

$899.00

Savings account

$3,000.00

Household items

$10,000.00

Collectibles

$2,900.00

TOTALS

$331,129.00

 

 

 

Then simply subtract your liabilities total from your asset total, to get your total net worth. $331,129.00 – $149,593.36 = a net worth of $181,535.64.

Generally speaking, most people will have more assets than liabilities. However, for people that have more liabilities than assets, this simple spreadsheet has helped them to understand where they stand. In order to get to where you want to be, you must first know where you are at. This discovery, even though it may look gloomy, is the first step to wealth building, and becoming debt free. Like taking a long road trip, you need a map to prevent from getting lost.

This spreadsheet represents where you are at, a map, so to speak, to show you where you are starting from. You can not expect to get debt under control until you see where it is coming from first. After you see what your total debt is, the next task will be how to correct it by reversing engines and taking control.

The above examples give an insight into your overall financial health. This does not show, however, how to budget your payments so that all payments can be paid on time. In the next diagrams will show what can be added to help with budgeting monthly payment plan.

In my next article I will discuss various ways of reducing these debts to a more manageable set of expenditures. By reducing, or maneuvering the monthly expenditures just slightly, you can add more monthly income to your bottom line. I will show a plan of what I have used to get my debts under control. Slowly, I am adding to my assets by paying off debts, in a systematic procession.  I am building wealth by reducing my debt. The more debt I reduce, the more money I am able to save and invest.  This is how I am building wealth.


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