Have you ever used Google to find out a famous person’s net worth? It’s an enjoyable experience.
“J-law is worth $60mil at age 25? What the hell have I been doing with my life!”
There’s a reason that when we want to know how rich someone is, we Google their name followed by “net worth” and not their name followed by “income.”
Why don’t we apply this same thinking to our lives?
Everyone knows how much they earn. You could probably tell me the exact dollar amount you get paid for your job and the exact time you get paid weekly/fortnightly.
While all of you know what you earn, how many of you could tell me what you are worth?
I’m talking about your net worth. Net worth is your assets, (things you own) minus your liabilities (things you owe).
If you have made some poor decisions and taken on too much debt or if you are young and haven’t started working yet you might have a small or negative net worth. This is okay and perfectly normal. Just because you have a lot of student debt right now doesn’t mean your finances are doomed for all eternity.
If you’ve worked hard, saved your money, produced a few gold rap albums and eventually used your business acumen to sell a headphone company for $3 billion dollars, you might have a substantial positive net worth. You might also be Dr. Dre.
Figuring out your net worth will give you a snapshot of where your finances are at. It will show the culmination of every financial decision you have made up to this stage in your life.
Your net worth is the one figure that shows EXACTLY how healthy your finances are
Once you know this, there is no more bullshit and no more lying to yourself. Figuring it out the first time might be painful, it might be a rude awakening to realize your finances are in terrible shape. However, it is a necessary first step on the road to a healthy financial situation.
If you’ve neglected your health and fitness for a long time, stepping on the scale for the first time might be incredibly tough to do. But it is something that needs to be done, having a starting point gives you somewhere to improve from.
I’m a big believer in the quote “what gets measured gets managed”. If you track your net worth, you will be more aware of how your finances are doing which will push you to make better financial decisions. If you don’t track it, you won’t.
If you don’t track your net worth, you will keep doing the same thing you’ve always been doing with your money, and your life will be worse than Leo Dicaprio’s in The Revenant. You will be (metaphorically) grievously injured, crawling through snow and eating raw meat to survive.
Ok, maybe not the last point, but tracking your net worth over time WILL help you get to where you want to go in life. You can set net worth goals depending on what you wish to achieve at each stage of your life. E.g., “I want to have a net worth of $50k by the time I’m 28 to put a deposit on a house.”
You don’t need to calculate it every week, once every two or three months will do. Once you’ve made a few entries you will start to see a trend. If you are moving steadily up, this will validate all the effort you are putting into improving your finances and give you the motivation to continue. If you are stagnating or going backward, you may need to rethink some of the financial decisions you are making.
If you were beginning a weight loss journey, you would weigh yourself before starting right? You can look at your net worth today as your “before” shot. You can continue “weighing in” periodically to track your progress.
How to calculate your net worth
Unfortunately, you are almost certainly not a celebrity, and cannot just Google your name followed by “net worth.”
You have to add up your assets and your liabilities. I know I know!, “Not maths! Anything but maths!” But it isn’t that hard once you get started. Some things, like your bank accounts or loans, should be easy to calculate. Other things, such as your possessions, might be a little more difficult.
The best way to estimate the worth of all your possessions is to make an educated guess at what you could get for them if you sold them today. Unfortunately, this means the spinning rims you bought “because they’ll get me all the chicks!” or those designer shoes that whispered to you from the shop window cannot be calculated at their ticket price.
It doesn’t matter if you aren’t perfect, just be conservative and do your best.
Some other things to make sure you include; your KiwiSaver and any other investments, and your student loan.
I’ve made my own net worth calculator which you can use to quickly and easy calculate your own net worth.
So take a couple of hours tonight or this weekend to sit down and figure out your net worth. Once that’s done set a date that you will calculate it again and a goal of where you want to be at that time.
Let me know how you go!
Dr. Dre image By Commondr3ads (Own work) [CC BY-SA 3.0 (Licence)], via Wikimedia Commons Image
Robert Downey Jnr By Randomideaguy (Own work) [CC BY-SA 4.0 (Licence)], via Wikimedia Commons Image
All other images courtesy of Pixabay.com
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