I previously wrote about the importance of figuring out your burn rate so you can have a better handle on your finances and plan more thoughtfully about your future. Another good metric to use is your net worth. In addition to burn rate, net worth can help you look at your financial situation from a bigger picture perspective to make sure you are on track to reach your long-term financial goals, whether that is buying a home or just having a certain amount of money set aside on some future date.
What is Net Worth?
Generally, net worth is defined as the value of all of your assets less your liabilities. To calculate net worth, simply compile the current value of all of your assets and liabilities on some periodic basis. The process should be pretty straightforward as long as you can remember where all of your assets (or debts) are.
Your assets may include your cash, checking and savings accounts, retirement accounts, investments, and select hard assets, while your liabilities may include a mortgage, car loan, student loan, and credit card debt (if you don't pay your balance in full each month).
For hard assets, like houses or cars, it's best to use the current market value for those assets and not the price that you paid. In addition, to keep the process simpler, I would exclude any hard assets worth less than $5,000.
Calculating Net Worth
To get you started, I've created a net worth spreadsheet template that you can use to figure out your net worth - just fill out the form below to receive a copy. Like the burn rate spreadsheet, feel free to customize this file to your specific financial situation.
In terms of frequency, I like to update my net worth spreadsheet once a month. No matter what frequency you end up choosing, it's important to calculate your net worth around the same day of each month, quarter, or year, so you can compare like results.