Determining Your Net Worth And Establishing A Starting Place
A net worth statement is exactly that. It really is a financial snapshot of how much you are worth and is your fourth step towards being intentional. It’s like standing in front of a shopping mall map with a big star that says, “You are here”. Knowing where you are is a crucial step to finding financial freedom. How can you know where you are going when you don’t even know where you are starting from? You must know your starting point, just like weighing yourself before starting a diet. It is a financial compass and without doing one and continually measuring your whereabouts you will have no sense of the progress you are making.
A net worth statement simply takes all of your assets and subtracts all of your debts to calculate your net worth at a specific point in time.
I would recommend doing this at least once every six months as a way to gauge your wealth building. It will help you to see the progress of where you are and how far you have come. Because this plan can be very challenging, having a net worth statement gives you the picture to pause and celebrate the sacrifices. It illustrates the growth and progress you are making and will inspire you to keep going forward! Although you may not see paying off your debts as building net worth you will, by nature, be decreasing your debt which does increase your net worth.
Making a net worth statement is not magic and it does not take a degree in finance to put this together. It is the very least you can do for yourself. Don’t pull numbers out of thin air. List your assets and try to be as accurate with their values as you possibly can. You will have negative net worth if you owe more than you own. If you do have a negative net worth don’t let that dismay you from completing this exercise and moving forward. If you are renting and have no savings and only have debt, you may have a negative net worth. Many people with big houses and fancy cars have a negative net worth and owning a lot of expensive things may not mean you are worth a lot of money, if you have more debt than equity. If you just bought a new car, you may owe more on it than it is now worth just due to the depreciation percentages.
I recently took a diamond ring into a jewelry store with its original appraisal showing $4800, however the jeweler offered me $300 for the ring explaining that was all it was worth to them. It can be dangerous to overvalue our personal possessions, so it is best not to include these items, as they may not bring you the cash, they are worth to you. Things are only worth what the buyer is willing to pay for it. Think of a garage sale and how little you get for the things you are selling!
If you are leasing anything like a car this is not an asset. You are renting it so it is neither an asset nor a debt and will be part of your budget (cash flow), but it is not part of your net worth.
Include all of your debts such as back taxes (income or property) owing, your mortgage, loans or debts to family and friends. Be honest about the debt and try not to inflate the value of your assets. Apply KIS, (Keep it Simple) and don’t get too wrapped up in every little thing you own. Don’t include everything in your house like your TV’s and bedroom furniture and be realistic and as accurate as possible.
You will find a net worth template on the next page. I would suggest completing it in pencil first as there may be things you initially miss. The net worth is done for a specific date in time. So please don’t forget to write that date down in the top right corner. Subtract the total of what you own from the total of what you owe to calculate your net worth.
To help you with your values there are some links below:
Kelley blue book for your car values www.kbb.ca
For your house value you can look for comparable homes in your area at: www.realtor.ca You can use this resource as a way to calculate the value of your home using comparable homes in your area.
Wherever you are is where you are.
This is the starting point.
Net Worth Statement – Date: ____________________
What You Own: What You Owe:
Chequing account Overdraft
Savings account Credit Card 1
Tax Free Savings Accounts Credit card 2
RRSP Credit card 3
Company Pension Credit card 4
Cash Surrender Value of Life Insurance Policy Secured Line of credit
Home Mortgage 1
Vehicle 1 Mortgage 2
Vehicle 2 Mortgage 3
Boats, Campers, RV’s Vehicle Loan 1
Cottage Vehicle Loan 2
Rental/Investment Property Recreational Vehicle Loan
RESP Cottage Mortgage
Rental Mortgage
RRSP loan or RSP Line of Credit
Cash money stores
Loans from family or friends
Back income taxes
Back Child support
Student Loan
Unsecured Line of credit
Property taxes owing
Total Own Total Debt
Total Own – Total Debt = Net Worth: 