What are you worth?

Firstly, I wish to be clear that I am not talking about how valuable you are as a person, nor do I hope to influence, raise or lower your opinion of yourself with this topic. This is not a discussion about self-worth.

[Although, I do acknowledge our self worth is vitally important and well worth investing time and thought however, there are plenty of material in books and the internet for guidance on that topic!]

Instead, I am going to address another form of personal worth – one that is rarely talked about and with much less information readily available to understand and improve…

Your personal equity, also known as your personal financial net worth.

Put simply, your personal financial net worth is the totalled value of everything you own less the totalled value of everything you owe. It’s really easy to calculate:

1. List all of your assets, including savings accounts, cars, computer, home, home contents, jewellery, motor bike, superannuation, etc.

2. Next to each asset, write its dollar value as at today; and then add up the total.

3. Now create a list of all the money you owe, such as home loans, credit cards, personal loans, etc.

4. Next to each debt, write the balance as at today; and then add up the total of all the money that you owe.

5. Calculate your net worth = Total of Assets minus total of Debts.

In very simplistic terms, if I chose to sell you, then your Net Worth would be an estimate of your sale price!

On a serious note, it is important to understand our net worth, as banks look at your financial position, ie all your assets and liabilities, and they calculate your net worth as described above. They consider your net worth, apart from just your borrowing capacity, when deciding whether to lend you money.

Obviously, banks admire applicants with a good net worth (positive, and the higher the better) and tend to frown on those people with a negative net worth. The good news is that your net worth is not a fixed amount nor set in stone, it can change…

The most practical way of improving your net worth is to reduce your debts!

So, when was the last time you considered your own financial net worth? And, if you’ve never calculated your own financial net worth, now is a good time to start!