e can't answer the first question for you, but you can guess the answer to the second question is "yes." Why else would we be writing about it, right?|
Net worth may sound like the kind of thing only Oprah Winfrey or Bill Gates would concern themselves with. Just getting from paycheck to paycheck captures all your attention. Cash flow--the paycheck-to-paycheck kind of focus--is important. But knowing your net worth--actually monitoring what economists call wealth (wealth, me?)--is important, too. It even can help you make some of the cash-flow decisions you struggle with every day.
"Managing money is a little like managing your health," says Nancy
Dunnan, a New York-based financial analyst, adviser, and award-winning
author of numerous books. "To determine what moves you need to make to
protect your health, you need a checkup first."|
Net worth simply is the difference between the value of your assets--such as your house, car or cars, personal belongings, savings, investments, and retirement plans--and your liabilities or debts--for example, mortgages, student loans, and personal loans. As long as your assets are more than your debts, you have a positive net worth. And from year to year, your goal is to make the positive difference grow.
Among other things, knowing your net worth can help you see if your debts are in proportion to your assets, if your investments are growing, and even if you need more disability or life insurance to shield your assets.
"You're going to be pleasantly surprised," Dunnan predicts. "Most people are worth a lot more than they think." People tend to forget what they pumped into their individual retirement account (IRA) and their 401(k)s, or overlook how much equity they now have in their house, or that they inherited some antiques from Aunt Ingrid. "And if they are pleasantly surprised, they're motivated to do even more positive things."
Dunnan's latest book is "Never Call Your Broker on Monday, and 300 Other Financial Lessons You Can't Afford Not to Know" (ISBN 0-06-270164-9). Lesson one: Determine your net worth. "Do this on your birthday, so you don't forget," Dunnan recommends. Another good time to calculate your net worth is when you assemble all your records for tax preparation each year.
Whenever you compute your net worth, another pleasant surprise will be that it's not that hard to do. Here's a summary you can print out or save and fill in. And once you've performed your checkup, repeat it annually--or at least, whenever your family or financial situation changes.
|Checking/share draft accounts||_______________|
|Savings accounts/share certificates||_______________|
|Cash value of life insurance||_______________|
|Retirement assets: IRA/SEP IRA/Keogh, 401(k),
vested value of pension plan
|Market value of securities||_______________|
|Market value of real estate||_______________|
|Market value of vehicles||_______________|
|Market value of household contents
and personal property
|Equity interest in personal business||_______________|
|Debts: credit cards, charge accounts,
income taxes, property taxes
|Balance due on:|
Table of Contents
Car Facts: Options Net Worth Fast Facts
|© 1997 Credit Union National Association, Inc.|