Take stock of your assets and liabilities to get a clear picture of your financial health
By Matt Smith
When doing a health check of your personal finances, it can be tempting to focus only on how much you earn and how much you’ve saved—or to obsess about how much you owe. To plan for the future, though, whether that means next month’s budget or your retirement, you need a complete picture of your financial standing, and taking a closer look at your net worth will give you a more nuanced perspective.
Net worth is the result of a simple calculation: the sum total of your assets minus your liabilities. Numerous online calculators exist to help make the process a breeze.
Assets are cash, savings, and personal property. This includes what’s in your bank account, as well as investments such as TFSAs, stocks, bonds, and retirement plans. Vehicles and real estate factor into this, as well. When factoring in the value of your car, be sure to go by its current book value, and estimate the value of your home based on real estate listings in the surrounding area.
After this, you’ll want to total up your liabilities. These include your mortgage, car lease, credit card debt, and any other loans or lines of credit. Subtract this from your assets and you’ll have calculated your net worth.
The results of this calculation may be surprising, as it doesn’t necessarily correlate with your income. Don’t be alarmed if it’s less than you were expecting, however. If that’s the case, then treat it as a wake-up call and a valuable insight into on how to better your financial health.
Ideally, you should calculate your net worth every month. You can use this information to track your progress as you work towards your financial goals. Paying off debts can feel more rewarding as you watch your net worth grow month to month.