Whether single or in a committed relationship, it's important to understand your individual financial health. Calculating your net worth is the first step in creating the financial independence and confidence that allow you to plan for your future and better respond to any financial crisis.

 

You might think you have a sufficient understanding of your financial situation. You know your income and the average amount of your bills each month. And you think you know how much you need to save each month. But if you don't know your net financial worth, it's difficult for you to grasp the big picture. It's simple to calculate, but most people never bother to do it. And it's the first step in a serious plan to save for the future that you want.

 

 

The basic formula for net worth is to subtract what you owe (your liabilities) from what you own (your assets).

 

 

When adding up your assets, make sure to include these:

 

To determine the current market value of your real estate (like your home), you can research recent sales of similar properties in your area, or just consult with a real estate agent. To assess the value of vehicles, check with current market price guides.

 

 

When tallying your liabilities, include these:

 

 

Now that you've subtracted your liabilities from your assets, you've arrived at your total current net worth. Each year, you'll want to recalculate this value to assess your financial health and progress. That's when you'll discover whether your net worth is increasing from year to year. Focus on improving that value each year, and don't dwell as much on whether you have a positive or negative net worth (which doesn't always account for the liabilities that are helping you to build future value).

 

Remember to consider inflation too. If your net worth is growing more slowly than inflation, you're falling behind in purchasing power. The value of your savings when you retire will be worth less than when you invested. You can find the current inflation value by visiting http://www.bls.gov/ or calling the office of the Bureau of Labor Statistics.

 

By assessing your current state of affairs, you've taken an important step. It's time to envision your retirement to ensure you're saving enough each month. Remember, if you plan to travel or participate in other costly activities, you might have to save more than others. Only you can write your financial future. So make it a good one.

 

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