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How And Why To Calculate Our Net Worth25 Sep

How and why to calculate our net worth

Do you have a really tight grip on your finances – knowing exactly how much money is coming in and going out each month?

Many of us get so busy managing our careers, relationships and health – we neglect our wealth. If we’re spending money, the real cost is actually 10-30% more than the price tag – why? Because…

that money could have been invested!

Many businesses run their financial year from April to March. At the end of this time they calculate their financial health by producing various reports which are essential for making sure they have enough cash to operate, and that they are on track for making all the hard work worthwhile i.e. there’s a profit at the end of the year.

Likewise, as individuals we absolutely need to know how healthy or unhealthy our finances are each year. This means income has exceeded out-goings so there’s a surplus at the end of the year (which should be saved or invested to boost income for the following year).

A really great way of keeping an eye on this is to calculate our Net Worth at the end of the financial year (or monthly to keep a really careful eye on it). Fortunately, Mr Gates and Mr Jobs have both provided excellent templates to help us out:

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Action Plan

Dig out some old statements and calculate the previous 2 years, then compare them with where you’re at for the current financial year. The idea is that our net worth should increase each year, leading to an end game of having a pot of cash (including savings and investments) that generates enough income to cover all our out-goings – without reducing the total amount i.e. our capital.

With some creativity, hard work and self-control against instant gratification, it is possible to achieve financial independence a lot sooner than retirement age, and then only ‘work’ because we enjoy what you do!

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